Ready to purchase a commercial property investment? First, you need to think about finance.
One of first questions we get from clients when buying commercial property is “what kind of finance can I get?” And rightly so. Because borrowing from the right lender can be the secret to a quick and pain-free purchase. Here is some of our best advice for navigating the world of commercial property finance.
Engage a trusted broker
You may think you know your current bank well, and you may even think you have a great relationship with them but the truth is you really don’t know them at all. Remember banks are huge companies with a lot of red tape and procedures to follow. Often a whole deal could fall apart because one small detail isn’t right. Rather than dealing with the bank directly, our advice is to always go through a trusted broker, who will know the right people in the bank for commercial property finance.
But of course, not all brokers are created equal, therefore it’s vital to use a broker who specialises in commercial property to get a positive outcome. Using someone with a proven track record in financing commercial property means they will know the best lenders for different types of investment. More importantly, they will know how fast each lender can move and therefore be able to recommend one that matches the timeframe for your acquisition. In fact, the efficiency and timeframe are often more important than the amount you end up borrowing. This is especially true if you’re buying at auction where the timeframe is always short and there are only few lenders who can lend within this.
It may be tempting to use a typical residential mortgage broker however, in our experience someone without the necessary commercial property investment experience often gets stuck when it comes to completing the transaction - right when you need them the most. Also, interestingly in the commercial property market it’s not the typical big name banks that are the big lenders. This is why you need to engage a broker who works with these specialist lenders (comprised of banks and building societies) on a daily basis.
Register with your broker early
Once you’ve selected your broker, it’s in your best interest to register with them and your lender early on. Ideally this would happen before you’ve even found a deal because often by the time you’ve found something it can be too late to organise finance. This is because the back and forth with the paperwork takes a lot of time, and of course everyone is busy which can delay it unnecessarily.
What a good finance deal looks like
Of course your loan will look different according to the property you are purchasing and your financial position, however there are some points to consider across all finance.
LTV (Loan to values):
Generally for a straight-forward investment you should budget for approximately 65% of the value, however this could be more for stronger, blue chip properties (sometimes up to 75%). On the flipside, this can also be less (around 50%) for riskier investments.
In the current market, an interest rate of around 4% is considered a good investment rate for a private investor purchase. Lower rates are available although these would be for larger loans of say £1m+.
Length of the loan:
This is usually around 20 years on a repayment basis but will depend on the lease profile of the tenant. Interest-only loans are possible but usually for shorter loan terms of, say 2-5 years, which won’t always suit long-term investors. As an alternative, part interest-only loans are possible where a proportion of the loan is lent interest-only and the remainder on a repayment basis.
Choose your own valuer
When securing a loan you may get a choice of valuer, and knowing what valuer to engage is very important. Some valuers specialise in blue-chip investment property and have a better grasp of those property values, while others are perhaps more local and may not understand the value of your property as an investment. This could be an issue for you as it could affect the amount you can borrow. Serious lenders tend to work with more experienced valuers, so again, by choosing an experienced broker you will be in the best position for a solid valuation.
Once you’ve found (and agreed upon) a deal, the most important thing is to get the lender to instruct the valuer asap and not waste time negotiating with the lender. You want it to be approved with them so that once you find a deal you can ask them to quote immediately and on your terms. Keep in mind a valuer often takes a week or two to turn a quote around.
Employ the right lawyer
A good lawyer is an essential component to a smooth purchase. Again, the key here is to engage someone who is experienced in commercial property and able to deal with the issues that may arise with this market. Residential lawyers may not be able to understand commercial property issues so it’s important to hire someone with the right experience. And when it comes to finance your lawyer will need to liaise with the lender’s lawyers, and it always helps if they already have a working relationship. There are one or two lenders who will use our preferred lawyers - this is by far the best scenario as only one set of lawyers will be looking over the documents.
How Prideview Properties can help
Our highly experienced team have connections to the best brokers, valuers and lawyers in the business, and having arranged finance on countless investments we can also very quickly advise you on what is a good loan and what is not. As part of our acquisition service we will guide you through the finance process, ensuring a smooth and stress-free experience.
If you’re in the market for a commercial property investment and would like to discuss finance options, call one of our helpful staff today on +44 20 8954 0878 or send us a message via our contact form. Or, if you’d simply like to browse properties available for finance and investment, click here to see our current opportunities. We look forward to working with you soon.