Inside a 24-Unit Semi-Commercial Deal: How We Stress-Test the Numbers

Mark and Gareth walk through a real deal they analysed — a freehold building with 24 student let units and commercial space on the ground floor — breaking down how they moved past the headline income figures to work out what the property was actually worth to them.

First Impressions vs. the Numbers

The building in question ticked a lot of boxes on paper: a rare freehold in a well-located, pedestrianised area, 24 student let units, and commercial space on the ground floor let to two tenants across three units. Gross income looked strong — around £164,500 from the student lets at full occupancy and £75,000 from the commercial space. The vendor was asking £2.5 million.

It's easy to get emotionally drawn into a building like this — good condition, good location, freehold title. But the discipline is coming back to the numbers and the investment criteria regardless of how attractive the building feels. A strong anchor commercial tenant on a long lease gave real comfort that the building would be looked after and would keep attracting occupancy upstairs, which was one of the standout positives worth weighing against the asking price.

Acquisition Costs Before You Get to Yield

Before even getting to rental performance, the first layer of analysis is working out the true cost of acquisition. On a semi-commercial building, that starts with confirming which stamp duty regime applies — residential or commercial — and whether the property is owned personally or through a company. If it's held in a single-asset SPV, buying the company rather than the asset can mean paying stamp duty on the share value rather than the property value, a difference that on a purchase of this size could be worth in the region of £95,000.

VAT is the next question to answer on any commercial purchase — is the property opted to tax, and if so, who bears that cost? Add in broker and solicitor fees, which are materially higher on commercial transactions than on a standard residential conveyance, plus any immediate capital works, and you arrive at your true "all-in" cost. Skipping this step and analysing yield against the purchase price alone is a common mistake, particularly on development-style deals.

Three Ways to Read the Income

Once the acquisition costs were understood, the next question was how to treat the income itself. The property could be run three ways: as student lets (the existing planning use), as standard residential lettings, or let to a local housing authority under LHA rates. Each had a different risk profile and, once operating costs were stripped out, a very different net picture.

Student lets had the highest gross income at £164,500, but also the highest costs — bills are typically included, and the units re-let annually rather than on multi-year tenancies, closer in operating character to serviced accommodation than a standard AST. Once bills and maintenance were deducted, net income fell to around £123,000. The residential route showed lower gross income (£150,000) but no bills to account for, landing at a similar net figure. The LHA route showed the lowest gross figure but effectively no bills or maintenance burden, also netting out close to £150,000. The plan B and C options were, on a net basis, more attractive than the headline plan A — a reminder that gross yield figures quoted by agents rarely reflect what an investor actually keeps.

Commercial Covenant Risk

The ground floor commercial space carried two very different risk profiles. One tenant held a long lease — around 25 years — was clearly embedded in the location for their own trading purposes, and was assessed as extremely unlikely to exercise any break clause. That tenant's strength effectively underpinned confidence in the whole building.

The second tenant was a different story: they had paid rent throughout but never actually occupied the unit, and their break clause was due within the next 12 months. That combination — non-occupation plus an imminent break — was treated as a real risk that the income would disappear, which would then put more pressure on the rest of the building to perform. Different yields were applied to each income stream to reflect this: a more aggressive (lower) yield for the strong covenant, a higher yield for the at-risk unit, and a blended figure across the whole building that fed directly into the valuation and, ultimately, the offer.

Compliance and Planning Are Part of the Numbers Too

Two further factors shaped the risk picture. First, the student units were bound by their existing planning use — they couldn't simply be switched to standard residential letting (a C3 use class) without a material change of use application, which in turn triggers updated building regulations, fire risk assessments and other compliance requirements. Second, commercial and semi-commercial buildings need an up-to-date fire risk assessment and asbestos management plan as standard, and lenders and solicitors will want to see them.

This isn't a minor point — a fire risk assessment that reveals significant remedial works needed can materially change what a property is worth, and sellers who haven't had one done sometimes walk away from a sale entirely once a buyer insists on seeing it. Missing out on a deal for this reason isn't necessarily a loss; it can be an expensive purchase avoided.

Financing the Right Way, Not Just the Available Way

On paper, a building like this could likely secure a 75% loan-to-value mortgage against full occupancy income. The point worth making is that just because that finance is available doesn't mean it's the right structure to take. A property leveraged against 100% occupancy assumptions can quickly become difficult to service if occupancy drops — and with 24 individual tenancies, some level of turnover and voids is inevitable. Lenders will test borrower experience, management arrangements, and downside scenarios before agreeing to lend, and rightly so — a building of this scale needs to be run more like a business than a simple buy-to-let.