Buy-to-let has been under fire for a couple of years and landlords are beginning to feel the financial strain of tax rises, the loss of tax relief and a tougher mortgage process.
The evidence suggests that many landlords have reviewed their situations and sold up as profits have turned into losses.
However, there remains a large contingent of property investors who are committed. Many of these have spent the past 12 months reviewing the make-up of their property portfolios and rebalancing to protect their profits.
Large numbers of landlords have started to include commercial and semi-commercial properties into portfolios, as the yields on these are typically higher than in pure residential.
But being a commercial property investor is a different ball game to being a residential landlord.
We take a look at the sector, its pros, and cons and how to invest.
What is commercial property?
Commercial property is the catch-all term for any physical property used for commercial purposes, such as running a business, shop or hotel, for example.
The market is broadly split into large-scale commercial developments, such as shopping malls, industrial units and big multi-story office buildings, and smaller commercial premises like corner shops, restaurants, garages and other business outlets.
It's the smaller scale commercial property that traditional buy-to-let landlords are beginning to move into.
This is because yields in this sector tend to be higher than in residential property. Rather than letting to just a family as a home would, for instance, a semi-commercial property - such as a shop with a flat above it - generates two rental incomes for a landlord.
Commercial properties are a higher risk - hence the higher rents - because they rely not only on a tenant paying each month but also on the profitability of the business they run in order to generate that rent.
Why are investors turning to commercial property?
Residential buy-to-let has seen considerable regulatory and tax changes since April 2016, when all new purchases became subject to a 3 percent surcharge on stamp duty.
This was followed in January 2017 by the introduction of tougher affordability checks on buy-to-let mortgages, resulting in most lenders requiring landlords to demonstrate that their rental income covered the mortgage payment by a ratio of 145 percent at a rate of 5.5 percent. Previously, this ratio had been 125 percent at the mortgage pay rate.
In April last year, landlords also began to lose the tax relief they could claim against their mortgage interest, with the switch meaning they are now effectively taxed on their revenue as opposed to their profit.
And in October, landlords with four or more mortgaged properties became subject to further affordability checks by lenders when they remortgaged one property or applied for a new loan.
Rather than the numbers having to stack up for that one property, landlords now have to submit figures for all properties in their portfolio before lenders can approve a loan.
Taken together, this has put considerable financial pressure on landlords, many of whom have simply thrown the towel in.
But for those who are prepared to do their homework and treat their investments as a business, the changes have been something of a catalyst for restructuring portfolios to make them more profitable.
Some landlords have opted to sell single-let properties and purchase houses in multiple occupation, as these tend to deliver higher rental incomes and therefore better yields.
Others have begun to invest in commercial and semi-commercial deals.
What are the benefits of commercial?
The yields tend to be higher, as the risk relates not only to the property itself but also to the viability of the business renting it.
This means that you'll need to be comfortable understanding the tenant's business, as well as having a grip on your own understanding of property investment.
The way mortgage lenders assess commercial property is also different from traditional buy-to-let. The affordability relates to the business as well as the expected rental income, while the portfolio assessment and rental income calculation rules referred to above are not applicable to commercial and semi-commercial properties.
Commercial properties are also usually leased on a long-term basis, with annual rent increases often linked to inflation - thereby providing investors with some additional security for their income.
Additionally, the 3 percent stamp duty surcharge on buy-to-let is not applied to either commercial or semi-commercial properties.
How do you invest?
There are various ways to get exposure to commercial property including buying it directly, investing through peer-to-peer lending or equity crowdfunding, or buying into a fund or investment trust that invests in typically larger scale commercial property.
It's not possible to get a buy-to-let mortgage on a commercial or semi-commercial property - you'll need to apply for a specialist commercial mortgage.
If you've never invested in commercial property before, the number of lenders that will deal with you is limited. Most lenders want to see that you have experience as a commercial landlord before they'll sign off.
Rates are typically higher than in buy-to-let and the mortgage is often linked to the underlying business tenant's lease. For example, some lenders require the tenant to sign a lease that matches the term of the mortgage - 15 years say.
If you're buying a commercial property with vacant possession - ie, there's no business in it at the time you need the mortgage - you may also really struggle to get a loan.
Nearly all lenders want to see evidence that the business is in situ and trading profitably before they'll approve your mortgage application.
The type of business on the premises is also highly relevant - lenders look for stable businesses with good cash flow; pubs and restaurants and nightclubs are a bit of a turn-off for lenders, as these businesses can have short lifespans and a high rate of going bust.
There are also the outlays to consider - you'll need to pay stamp duty, legal, valuation and broker fees, mortgage fees and there will be maintenance costs.
Affordability relates to the business as well as the expected rental income
Peer-to-peer and crowdfunding
Over the past five or six years, investing in property through peer-to-peer and crowdfunding platforms has grown enormously in popularity. There are now lots of platforms to choose from and each offers a slightly different proposition.
It's critical that before you invest, you fully understand how the platform uses your money.
Peer-to-peer lenders allow you to make a loan, or contribute to a loan that is made to a landlord or developer. They make interest payments on the loan and at the end of the term, should repay the initial capital. The property sits behind this agreement as security which can be sold in the event that the borrower fails to keep up with repayments.
Crowdfunding is different from peer-to-peer. These platforms allow you to buy and own either a property or part of a property which they manage. Your investment can go up or down as it would when you buy a property directly, as it depends on property values.
If the property is let out - either to individuals or to a business - you may receive a monthly or quarterly income in addition to what you hope will be capital growth over the longer term.
Both peer-to-peer and crowdfunding platforms have different approaches, in that some allow you to put money in and spread it across a number of properties, or a portfolio run by them.
Others allow you to put your money in one specific property.
Additionally, you should be mindful that investing in either of these options could mean your money is tied up for a while; these markets are still relatively new and selling your investment could take some time.
Some platforms offer a secondary market allowing you to offer your shares or investment to other retail investors. The time taken to sell on these varies and will be dependent on demand. You may find you can sell for what you paid for your investment, but equally it could be that offers you receive are higher or indeed lower.
Funds and investment trusts
Traditionally this has been how most retail investors get exposure to commercial property in their portfolios.
Funds and investment trusts have far bigger buckets of capital to work with and tend to invest in much bigger scale projects or entire office buildings or retail parks.
The liquidity of your investment in these funds is much better as units or shares are traded much more frequently.
Bear in mind though, that open-ended funds investing in commercial property have been forced to freeze withdrawals in the past when the market has hit a bump, so investors have been unable to sell up when they've wanted to.
Closed-ended funds, as investment trusts, are do not have to do this but their share price may end up trading at a sizeable discount to net asset value, which represents what they hold.
Source: This is Money.