£200,000 to buy a commercial propertyPublished on 21st February 2020 2020-02-21T12:00:00+00:00 - Last update on 24th February 2020 2020-02-24T17:11:29+00:00
Having premises in the right location is an important asset for your clients. Their customers know where to find them. Suppliers know where to call.
This means that if your clients have premises in a good location, moving would be a risk to the business. But if those premises are leased or rented, they represent a potential threat to the business. The costs may be inflated by the landlord, who could raise the rent at any time.
Premises costs can be among the largest costs your business clients face. If you see that buying premises from the landlord might provide the solution we can help source the funding required.
We were recently approached by an accountant who had a client with a heavy equipment hire business with a number of outlets around the North Norfolk area. The business was thriving but the owners were concerned about escalating costs, and asked their accountant to identify how savings could be made.
The accountant saw that the property costs faced by the business were high.
“They had depots in good locations where they were well known, but they seemed to me to be paying too much for them. I saw that a particularly high proportion of their income was being eaten up by the cost of renting their property. I believed that they would be better off buying, and I knew that the landlords had been prepared to sell sites in the past. I thought it would be worth making an offer for at least some of the sites now.”
His client agreed, and approached the landlords.
“We found one that might be prepared to sell. The cost of the site was reasonable - it was only a portacabin and an acre of hardstanding, although the location next to a major road was ideal for us. £200,000 would buy it.”
At Rangewell, we have often found that we can arrange a Commercial Mortgage to help business owners buy out premises with costs that undercut the amount they are spending in monthly or quarterly rent. It allows the client to build up a valuable asset for their business, as well as cutting their outgoings.
Are your clients ready for a Commercial Mortgage?
A Commercial Mortgage is one of the most common forms of finance used to buy commercial property.
With the loan secured on the property itself, the risk to the lender is small and the interest rate they charge can be correspondingly low. As a result, the rates offered with a Commercial Mortgage can be among the lowest for all commercial lending, with the purchase price spread over 15 years or more. The main difference from a residential mortgage is that the rates and terms for a Commercial Mortgage are arranged on an individual basis. Lenders will look at your client's business and at the accounts and projections you provide as their accountant before making their decision.
Some points to explain to your client:
- Most lenders will lend up to 70% of the property value so the client will need to put in a 30% deposit
- Depending on the sector, we may be able to find 80% LTV
- 100% of the purchase price may be provided if the customer can give additional security via a first or second charge over their main residence
- Stress testing may require affordability for the loan at 5.50% to take into account potential rises in base rate - this will not be the rate of interest the customer will get which will be significantly lower
- In most cases, banks will lend up to 20 years depending on the client's age.
The client pays £1,000 a month in rent or 12k a year.
A loan of 140k over 20 years at 5.50% interest at £963 a month.
If the client had 30% deposit they could look for property to purchase in the region of 200k.
Are you ready to find out more?
It is not always possible to buy premises that are rented, especially if they are part of a large estate. However, commercial landlords are businesses and it may be possible to make an offer that they find acceptable.
Our property funding team can work with you to help you see what lending solutions could be arranged for your client. Simply contact us and get our expertise working for you and your clients.
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