Commercial vs. Residential Property | Samuel Leeds & James Sinclair
Articles,  Blog

Commercial vs. Residential Property | Samuel Leeds & James Sinclair


Samuel: Samuel Leeds. We’re looking at a deep
dive discussion today into commercial property, so I brought on my good friend, Mr. James
Sinclair. James, welcome to the show. James: Hey, Sam. How you doing, mate? Good
to be here. Samuel: Good to have you here. James: Yeah. Samuel: You’re an entrepreneur? James: Yep, that’s mainly what I am, but yeah.
I’m a property turner. And I love what you’re doing, so I was really keen to come on here
with you. Samuel: Yep. I wanted to bring you on this
discussion, because you’re an entrepreneur, you make a lot of money. You’ve invested in
residential property. You’ve also invested heavily into commercial property. So, I thought
it would be really good to get a pros and cons of commercial versus residential, also
your understanding of what is commercial property. But before we do any of that, why don’t you
just give just a little bit of introduction to yourself and explain where you are and
where you’re coming from. James: First of all, I started off right here
doing kids parties. Samuel: Yeah, it was. And that was my background. James: Magician. Yeah. Yeah. Samuel: I did it for a few months, you did
it for about- James: You would not believe how many people
in this industry started off doing kids’ parties. Samuel: Really? What? In- James: It’s really all magicians- Samuel: … property or the training industry? James: … in the training business, because
we’re not supposed to make sense. Samuel: Or Simon Zutshi. He was an entertainer. James: Was he really? Samuel: He was a magician. James: Yeah. Even The Wolf of Wall Street,
Jordan Belfort, you know that guy started off doing kids’ parties? Samuel: Well, there we go. James: There we go. So basically, I started
off doing that. I built that business up. I started buying property, residential when
I was 18, 19. And I rented that out and then, I remortgaged that to build what I would call
a traditional brick-and-mortar business. I built a children’s family entertainment centre.
Then, I started building day nurseries and then … Bless you. Then, I built a theme
park and a farm zoo park. And that business grows there, we’ve got over 400 staff do about
a million pounds a month in sales, and that continues to run. And then, I had some spare
time and I went into school and started teaching business and entrepreneurship. I wrote a couple
of books. And … You really have got a little coldy woldy there haven’t you?! Samuel: Sorry matey. James: And then I started thinking, a lot
of people that were doing really well in property and I realised the people that were really
super wealthy didn’t have flats and houses, they had office blocks and commercial property.
But, I also realised there is a much higher barrier to entering. That I, at 19 couldn’t
have gone and bought an office block or a warehouse to rent out. It’s much harder to
get the mortgages on them and etc., etc. But I think, over the long-term, there’s more
money to be made out of commercial. Samuel: Okay. Yeah. Interesting. I would agree
with that. I mean, when I speak to people like Lord Sugar about property, he is into
property in a very, very big way and he only does commercial. But then, if that had been
the way forward, the best way forward, I’d have never gotten into property, ’cause there’s
no way … I mean, I do commercial now, but starting out, where do you start? James: The caveats at Alan Sugar as well,
and I believe it’s business first, property second because a business can generate so
much cash flow if you get it right that you can then really grow your property. But lots
of people think property, then business or they spend so much time on their property
stuff they’re not looking at their business enough. And if you really build a business
really successfully, it’s so much tax efficient to get wealth out of that into property. Samuel: I guess it depends on what you’re
willing to achieve. If you’re willing to achieve serious wealth-building then I would agree,
the best strategy is to have a business that makes a lot of cash flow. Dump that money
strategically into property. James: Yeah, you’ve got it. Samuel: That is the best way to make a lot
of money. James: Yeah, absolutely. Samuel: I think if you’re … A lot of our
viewers are starting with very little. They might be working in a 9:00 to 5:00 job, really
boring, and all they wanna do is replace their income. And to replace their income … actually,
to talk to them about setting up a business and making a lot of cash flow and dump it
into commercial … Actually, that’s a completely different world. James: Funny thing is though, do you know
why I started out in property? It was partly pension planning. I thought, I was 18, bought
my first one and that would see me into the sunset when I got older. But, I also went
into property for the reason that I knew that I would buy in Essex ’cause I was from the
southeast … Sorry about that. From Essex, I would buy these and they would grow in value
and I’d be able to give them to the bank as security to borrow for the business, not to
buy more property. And I knew that I wanted … I started with the end in mind, I knew
I wanted to own visitor attractions. I knew it was a capital-intensive business. James: When I was 16, I knew I wanted to own
zoos and theme parks and stuff like that ’cause it was what I loved. I was passionate about
that stuff. But I knew that I needed lumps of capital to do that, and I thought, be a
magician first, learn the game. It’s a cash flow business. Buy some property, grow the
equity. Give that to the bank to borrow to build the capital-intense business. Samuel: Yeah, and that’s very smart. And that’s
worked out really well for you. James: Yeah. And it has worked, yeah. But
that’s not for everyone like I say. Samuel: What would you say then to somebody
who … If someone was just starting out and they were literally on 30,000 pounds a year,
and they had 30,000 pounds in the bank. They were working in a job they hated. Do you not
think that that person, residential would not be a better way to get started than commercial
would be? James: Regardless of it’s residential or commercial,
in that situation, I would be looking for high-yielding assets. So, good cash flow properties,
whatever that would be. Depends on where you are in the country. If you could buy a building
for 100,000 pounds and turned it into offices, I think that would make more money than service
accommodation in the residential world. Samuel: Okay. But then- James: But, it depends where you are in the
country. That is impossible to do in Essex, impossible to do in London, Kent and any of
the home counties. Samuel: Ah but so is residential stuff. James: Yeah, absolutely. Yeah. So, I would
be looking at it on a deal base, obviously, I would want a 20% ROI at least on my main- Samuel: Yeah. Yeah. And you’ve been to my
crash course, right? James: Yeah, I understand. And that’s the
stuff that I would believe and that’s what I would do. I would try to look for it in
commercial ’cause that’s what I know now. But back then, when I didn’t know, I would
probably just go for houses. Samuel: So, why don’t we do a list then of
pros to begin with in commercial? And then, we’ll perhaps, look at some of the cons to
commercial as well as the pros of residential. And then, the viewers can make their own mind
up. James: Okay, go for it. Samuel: You’re clearly very pro commercial
generally, so you go first and give me the single one biggest pro about commercial property? James: Not that it should be about this, but
the government are not anti-commercial landlords. And I believe the establishment are anti-residential
landlords at the moment. Samuel: So, for instance, stamp duties are
a lot cheaper? James: Yeah. So, lower stamp … the first
150,000, zero stamp duty. That’s a huge pro. You can claim all the interest back, all the
costs back. None of that stuff has been affected on- Samuel: You can do that over residential when
you’re buying through a company? James: Yes, of course. Yeah. I suppose. The
yields are usually a lot higher. Samuel: Really? James: Yeah. Samuel: Hold on, as well. I was- James: I’ll give you an example- Samuel: … let me give you one thing about
commercial. I don’t think the yields are high- James: I’ll give you an example. Samuel: All right. We’ll talk. James: … I’ll prove that to you. Samuel: I guess, an advantage to commercial
property would be that usually, the tenants are better because they’ll totally take responsibility
of the whole building and property. So, rather than them ringing you and saying, “Oh, the
electricity’s not working. I believe the light bulbs need changing,” you wouldn’t really
get that? James: Well, it depends. If you’re doing service
offices, then it’s the same as doing service accommodation. You’re responsible for the
building. Samuel: Yeah. I guess, yeah, it depends on
the commercial property. But usually, you can very easily have commercial properties.
Some of the properties that we’ve got, you can just … You’ll have a 10-year fixed contracts
and they’ll do everything. Unless it’s- James: Yeah. Yeah, absolutely. Yep. Samuel: … they’re houses. And you can just
literally turn your back on it, forget about it, and it really is passive income in the
best and purest sense. So, I guess that’s a good thing about commercial. One of the
things that I don’t like about commercial so much is that I think that you usually need
more money, not always, but you don’t see many either anyway, maybe you disagree with
me. James: You need more money if you haven’t
got a trading business next to it. That’s very important. Samuel: But a lot of people have it now. So,
if you’ve just got 30,000 pounds to invest- James: No. Samuel: … you’re gonna really, really struggle
with commercial. And also- James: Yeah. Yeah, commercial in short form
is for people that are business owners and in proper, serious investors. Samuel: Well, that’s quite a big negative
for certainly, a lot of people. James: Absolutely it is. Samuel: How much would you say you need to
invest in commercial property? I know it varies massively, but generally speaking? James: What I would say first, the first commercial
property anyone should buy is, if they was going to go into this … and this does answer
your question. If you’ve got a trading business and you, I don’t know, it was a fish and chip
shop and you wanted to buy the building the fish and chips shop operates out of. If that’s
a profitable business, you should be able to get 100% finance from that just by going
to a normal bank. Samuel: Is that not only for certain types
of businesses, though? Like, if you were an accountant or something like that? James: No, no. Basically, you would … So,
you would usually need bigger deposits for commercial property. That is also a negative.
And- Samuel: Yeah, you need to put at least 40%
in? James: No, no. If it’s not Own-to-Manage business.
So, if you go back to our fish and chips shops and RO. I’m a fish and chip shop owner. My
business is making 70,000 pounds a year. If I could buy it, I don’t wanna put a deposit
into it. I’d be going to banks saying, “Look, I need to keep my money in the bank but this
makes commercial sense. It’s gonna improve my cash flow if I can buy it.” You’re lending
me 70%, the government will come in and do what we call an EFG loan, Enterprise Finance
Guarantee loan and they will lend you the deposit. So, it’s like help to buy, but for
commercial property. Samuel: Which is basically, no money down. James: No money down, but- Samuel: If you’re gonna be there. James: Yep. They won’t do it for investment
purposes, but that is a really smart thing to do. So, if you’re a doctor or if you’re
an accountant, yeah, they’ve always done those sorts of deals. But for your business, you
can go up to a bank and they should give you an EFG loan because you’re employing people
and blah, blah, blah, for the office that you’re operating out of if you wanted to buy
an office. And what I would do, it would be cheeky, but buy an office that’s too big and
then, rent out another couple of floors and then you’ve sort of- Samuel: So, if you’re a trader and you have
a business that’s a bit of a no-brainer- James: Absolutely. Samuel: … way to start to get your foot
into the door. We’ve got a lot of our students that have got businesses and we’ve advised
them to do things like that. James: Where I think coming, just one little
… So, if you was the fish and chips shop owner and you wanted to do more residential
stuff, if you’ve got one business trading with the bank, you could then have a commercial
bank manager that will look after you, that will help you do your residential property
aspirations. And that’s a little trick that I’ve definitely found that’s helped me. Samuel: Brilliant. So, are there any other
big, massive pros to commercial? James: Another negative would be you always
have to pay the capital down. So if you get taxed on invisible income, most mortgage lenders
want the capital paid down on commercial, so you can’t do interest only. So, you’re
paying the capital down, that looks like a profit, you’ve gotta pay tax on invisible
income I call it, I mean, that’s not really. But you’re paying tax on the capital that
you’re paying. Samuel: Yeah. Whereas, residential you can
just wait for the property to go up in value- James: Absolutely, yeah. Samuel: … pay the absolute minimum. Yeah. James: But, if you’ve got a trading cash flow
in business, you could probably put that in the P&L with the trading business and that
could be tax efficient. And I just … Let’s think of another pro. I think the rents are
much higher. That’s why, as well. So, can I just talk through a deal? I bought- Samuel: Tell me the kind of return investment
you get from commercial property? James: I bought a property for 140,000 a few
years ago and it rents for 35,000 pounds a year. Samuel: Okay, that’s pretty high. So, what’s
that giving you? Is that about- James: So, what I do is I do basically, a
HMO for commercial. So I’ll buy a warehouse. I put two units downstairs and three offices
upstairs. So, then I de-rate it for council tax, so I don’t have council tax anymore because
you get small business rates by separating the business. So, never have to worry about
business rates or council tax or anything like that. If one of my tenants go bust, I
convert another one in. So basically, I’ve looked at the HMO model and go, “I really
like that. I like that, that’s a high yielding thing in the residential world. And I just
stole that idea and put it into the commercial world.” Samuel: That’s fantastic. How would you go
about finding a commercial property like that? James: I think it’s fine in the right locations
’cause you wanna choose where there’s a … See, with residential, you can sort everyone wants
to live anywhere with the residential thing in the UK, but I think it’s much easier to
do those in busy towns where there is business and trading going on. But you still wanna
use your same ROI stuff. I’ve just bought a 900,000 pound warehouse, so completed on
that yesterday. I put no money into it. Zero money into it. Samuel: How did you structure that? James: Well, the bank just went, “Yeah, I’ll
do it,” because it’s my trading business. I’m the tenant of it. Samuel: Okay. Yeah. James: And if you just went up to the bank
and said, “I want to buy X property and I don’t wanna put any money into it,” then they
would say no. Samuel: So, if- James: But if you’re a trader in businesses
… that I just find, if you’re a trader in businesses, you can do more in residential
and everything. So, it’s a really good thing for a property investor to have in your armoury
because you get to meet decent bank managers that can say, “Yeah, I understand what you’re
doing here James, we can make a commercial decision on that.” Core centre banking can’t
do that. Samuel: What would you say then if somebody
was not a businessman and they add, say, 100,000 pounds. Would you think they would be better
off putting that into commercial or residential? James: No. Even though I’ve said all this,
I would still do residential first because it’s a step process. I told you I wanted to
own a visitor attraction. I knew that first one, I need to be a magician, learn how to
deal with customers on a small scale, learn how to pay bills and invoice bill, make that
profitable. Then I’d done an events business. I hired out equipment. Then, I found an indoor
place and then I’d done a day nursery. And then, I went for a farm park. Then we went
for the theme park. There’s a step process. You don’t wanna cut things out and not learn
the stuff. Samuel: Yeah. And I think that … I mean,
it’s only in the recent months and years that we’ve started even doing commercial at all.
I think if I had started doing commercial six, seven years ago even … I’m glad I didn’t. James: Yeah, because when you’re a business
owner you understand business and therefore, you’re gonna be better at doing commercial
property ’cause it’s mainly to businesses. Samuel: Yeah, but when you’re just an investor
who’s got some cash … I think, personally, if you’re an employee and you’re wanting to
get out of your job, I wouldn’t even think about commercial. James: No. Samuel: If you’re a business person, and you’ve
got cash coming in, then you definitely need to look at commercial. James: What could be good though is if you’ve
built up a series of residential property portfolio at year 10, so you’ve been doing
that for 10 years. You can then say, “Right. I’m just gonna buy one building now for a
million quid.” And if you’re smart, you could do self-storage in there. You could probably
bring a quarter million quid a year off of that. And you could put just one person running
it. But, those 10 … And you could just probably re-mortgage and do that. James: So, I mean, self-storage, I’ve got
a client I work with that does storage and that’s huge and profitable. And it’s a good
bolt on. So you can say, “Right. I buy a warehouse. I do storage in there.” So you’ve got a trading
business and then you can build a commercial property portfolio off of a trading business.
And you can get bank guarantees and stuff like that to build up, that could be another
way of doing it. Samuel: Yeah. There’s not a lot of places
that you can learn about commercial property. We focus on residential, certainly to begin
with unless they’re very advanced. James: Yeah. The big problem is, wherever
it’s a high barrier to entry there’s more money to be made. Everything you do in life,
the higher barrier to entry is the more money to be made, but it blocks people. So, I don’t
know, I’ll give you an idea, like opening a theme park is probably one of the top things
in leisure that makes money but it’s a much higher barrier to entry and not everyone can
open a theme park for example. Samuel: But when I’m doing my Financial Freedom
Challenge next week, I’m gonna be using the strategies which require no money at all,
but I’m not gonna be making even tens of thousands of pounds let alone hundreds or millions. James: Yeah, yeah, yeah. Samuel: I’m gonna be making hundreds of pounds
and thousands of pounds- James: That’s right, yeah. Samuel: … but I’m starting with nothing,
which is very doable. But then, the other end of the spectrum is if you’re making hundreds
of thousands of pounds or you’re making millions, you don’t wanna buy … Who wants to own thousands
of residential properties? James: No, that’s right. Samuel: Nobody. James: No, no. That’s right, you don’t. But
I just think some … See, when people come into a business saying, “I can do this. I
can do this.” That’s low barrier to entry ’cause they think they can do it. If you sit
in, I don’t know, a 2,000 bedroom hotel and you’re sitting there in the reception and
think, “I’m gonna open a hotel with 2,000 bedrooms.” That doesn’t go through many people’s
heads. But the person that does think like that, they’re gonna makes so much money. And
it’s about thinking just a bit bigger than small thinking, ’cause somebody’s done it
haven’t they? So, it is possible, you’ve just gotta say, “No, I’m gonna do that.” Samuel: What advice would you give, you know
my followers. How did you find the crash course, by the way? James: Yeah, I think your fantastic mate.
And I actually love you a little bit. Samuel: Oh, mate. James: I think you’re a really nice guy. I
think you’re honest and genuine. And I think, we both teach people. I teach more about business
and entrepreneurship. You teach about residential property, so it’s slightly different. But
our styles of being friendly and wanting to help people and passionate about that is very
similar. And I’m drawn to people that care and that’s why I like you … Samuel: No, I really appreciate that. James: … in a straight way. Samuel: What advice would you say to my guys,
my followers? You know that client situation is usually, what would you say the best advice
would be to this? James: Stay teachable. Like I told you before
we come on camera, stay teachable. It’s very dangerous if you build a little bit of success.
So, maybe you’ve got four or five property deals in the bank and you think, “Yeah, I
know this so I don’t need to listen to anyone anymore.” That is wrong. And you need to make
sure that your mind can be changed by facts, not by theory, by facts. And that’s why I
like you as well, Sam. That’s probably one of your greatest strengths that I’ve picked
up and I really try and make sure I that I can stay having my mind changed by facts. Samuel: That’s great. And James, one of the
things that I love about you is you really have walked the walk- James: I try. Yeah Samuel: … ’cause a lot of people out there
that try, and teach, and they’re only just doing it themselves. James: Well, I’ve had some tough times as
well. It’s not always been easy. And it’s been a process of 10 years. One of the things
that I probably … another caveats of what life could teach me I’d say I think wealth
takes about 10 years to build serious wealth. And I think that’s doing that at speed. I
think you can bring in cash wealth within two or three years, but real sustainable,
equity wealth worth, is a 10-year plan. And people need to remember that. Samuel: Yeah. And that’s just realistic. And
sometimes people get the wrong idea when I teach financial freedom and they say, “You’re
saying that some of your students have done it in weeks.” I’m not talking they’ve become
millionaires. I’m not talking they’ve created a big wealth pot. I’m talking, they’ve replaced
their income and they’re now either full-time in property or they’ve got a small passive
income of two pounds a month. That’s very different to the stuff that- James: One of the things that I teach is you
should get yourself into what I call the 50-50 model. So, I call it fast pound. So, all of
that money that’s coming into your success students, I call that fast pound, income and
your personal bank account. And what most people do is spend all their fast pounds,
so that could be a salary. Fast pounds in. And then, the next stage of building wealth
is assets, so that’s property. Third thing is business or fourth thing, someone dies
or marries … you marry into it. They’re the four ways to build wealth. Income, assets,
number three is business, number four, marry or divorce or death. So, they’re the way that
you can make money. James: So, if you build a fast income, that’s
money coming in, good money, you wanna make sure that you’re investing at least 50% of
that back into assets or into business and then, those two parts of wealth fund your
fun. You should get all of your fun living holidays coming out of those two things. And
really, if you can’t invest 50% of your fast pounds coming in, it’s working out ways that
you can increase that 50-50, and that’s where you’re fabulous ’cause you can teach people
how to get that to a 50-50 status. And if you do that, you’re on the path to big wealth. Samuel: That’s great. James, I really appreciate
you coming on to the show. James Sinclair, check him out. James: Thanks guys. Samuel: And where would you recommend people
go to in order to check- James: On my YouTube channel, that’s just
James Sinclair Entrepreneur. We’ve got sort of, 300 videos, but they’re more business
and entrepreneurship. But I really recommend people that are investing into property learn
business stuff, read books on business, ’cause it’s so much of that stuff that’s helped me
to grow my property business- Samuel: Yeah, sure. James: … hopefully, it’s the same for you- Samuel: Absolutely. James: … ’cause it is a business that you’re
running. Samuel: You don’t want a table with one leg,
you want four legs. I’m gonna put a link to James’ YouTube channel below, so check it
out. Subscribe to his channel. James, you’re a good friend. Thanks so much for coming on
the show. James: Thanks, mate. Cheers.

18 Comments

  • ladygh

    I do not have the funds to buy a commercial property because I am on 29000 a year. However I have saved enough to get a residential property. Is it possible to rent rooms to lodgers in the residential property whiles being a live in landlord (just to comply with residential rules) then afterwards remortgaging this property into a commercial property or buying extra commercial properties?

  • Joanne Smith

    This is quite confusing, seems like a whole different approach to investing compared to HMOs. Hope you do more videos on commercial properties, seems like a whole new level and seems like the next step after you're bored with residential properties

  • Scott Geoffrey

    I don't believe it, I think I've actually met James when he was performing at my nephews birthday, from what I remember he got into a massive balloon. He had my sister and me crying with laughter. My far the funniest magician/children's entertainer I've seen in my life. Legend!

  • D

    Hi Samuel, any interest in starting a youtube series where you guide a 19 year old ground up in how to get into properties as an entrepreneur? You also get to change some lives along the way 🙂

  • Chris Boyce

    One advantage you have overlooked is you can buy commercial property via a pension you get tax saving & the rent goes back into the pension fund.

  • Guy Levi

    Very relevant video as I have an office based business and I rent where I am working.. If I applied for an EFG though I would have to pay tax on that as it is classed as an income (40% I would be paying). So on say £30k grant I am straight away owing hmrc £12k… How can I offset this ?

  • Joanne Smith

    Hi Sam, have you started investing in offices now? Will you be doing a video on how to transition from our focus on residential properties to commercial buildings?

  • Vbastard

    "who would wanna own thousands of residential properties/ – nobody!!"
    Was that a serious statement ?
    Who wouldnt wanna own thousands of any properties?

Leave a Reply

Your email address will not be published. Required fields are marked *