When planning to obtain a commercial mortgage in NZ, think ahead about all the implications, so you do not find yourself signing documents that you do not fully understand. Do some research about the different finance options available. Since the finance market, especially the commercial and industrial markets are so complicated, make time to educate yourself. This will help to avoid falling into any potential legal traps. Learn too about the costs of raising a commercial mortgage. And above all, be patient and take your time. It is important to have clear ideas about what commercial mortgage borrowing means and what are the correct steps to follow. Here are a few ideas:
Do thorough market research on different commercial mortgage providers before deciding which one to choose. There are plenty of potential finance companies in Auckland and other cities in New Zealand. Some specialise in specific types of funding while others provide across the board services. Some are smaller operations and others are the business side of the big commercial banks. Think about which type of lender you will feel more comfortable with.
Before applying for a loan, it is important to have all your papers in order. This includes your last year’s accounts audited by our accountant. You should also have papers showing the reason you are asking for this loan, the pay-back and the return n the investment you expect to receive.
If there are any adverse credit issues then look to correct these. You can and even do a research about your company’s credit history so you are able to explain nay issues that may be recorded.
In case you are taking the mortgage on an existing premises you own in order to open a business, having a business plan is absolutely essential. However, if your business is already operating then as mentioned before, be sure to provide your latest accounts.
Make a realistic decision about how much money you can borrow. Also do not borrow more than you actually need. Remember that a commercial mortgage is a debt which carries liabilities and obligations. It also comes with increasing costs in terms of interest payments. So be sensible when assessing how much you want to borrow.
Make a file that contains all the documents, files and correspondence related to the loan. This will save you time when you are asked to provide copies of documents, or if you need to refer to any papers to respond to lenders’ questions.
Research the market and obtain costs from different lenders and brokers for commercial mortgage in NZ. While lenders will want to do research about you and your business, you should likewise research the finance companies. Ask as many questions as you can about that lender in order to obtain confidence in them. Ask them for references too from other clients they have dealt within the past.
Once you have decided to apply for a commercial mortgage, think about the monthly interest payment expenses. If you want, you can also search online for a mortgage calculator to help you determine an approximate amount.
There are many more data points to take into consideration when you apply for a commercial mortgage loan, besides the monthly payment. You still need to consider the loan term, the loan amount, the penalties, the type of loan and many others. It is a difficult decision.
Once you have taken into consideration all the above requirements, it is important to also think about the other fees involved in such a transaction. These will include such things as a valuation on the building you are taking the loan against, your lawyers processing fees, any insurance policies you might need to take out and some financiers, especially the major banks, will also have fairly expensive administration fees as well. You need to build these into your budget and cash-flow forecast.
TIP: Remember to ask about the APR (annual percentage rate) which combines the interest rate and all the charges, fees and any other additional payments, and turned into a yearly interest rate. The APR is an indicator that tells you what your true are costs and will give you the opportunity to compare the costs of different loans.
TIP: Never take decisions based on verbal offers. A professional lender will always send you a written mortgage offer.
If you want a commercial mortgage in NZ there are plenty of lenders you can contact. These include boutique finance houses, brokers or you can go directly to one of the commercial banks. If you prefer not to go to a major bank, then you can look at one of the commercial mortgage broking companies like Global Pacific. You can find more details on their website www.globalpacific.co.nz/.
A lot of businesses have their companies operating in rented premises yet are they overlooking the advantages of owning the building by means of a commercial mortgage? Generally it is a cheaper option to run a business out of rented premises yet there are numerous benefits to buying a property. If commercial property piques your interest, then this article might help you decide on the best way of getting a commercial property mortgage.
The advantages of a commercial mortgage.
When renting a property for business use, obviously you have to allow for the regular payment of the rent. This is easy to build into your cash-flow projections. Moreover rentals keep rising at regular intervals often at pre-agreed rates, like CPI or an agreed inflation amount. These are written into the rental agreements before they are signed.
Commercial mortgage for warehouse – image photoraidz
However, typically the lessee also has to pay for repairs, maintenance and other variable costs. These can play havoc with cash-flow plans.
The rental can be avoided if you have a commercial mortgage on your building.
There is also the added advantage of the property appreciating in value with time, as most real estate does. If you are leasing the premises, the owner gets the benefit of that growth in value of the property. If you are the owner of the building then you are the one who makes that financial gain.
Commercial mortgage gives you a piece of mind that owning a property does. You do not have to base your business on the vagaries of a landlord. This is not a small measure; imagine the costs of relocating if the landlord decides to sell.
The interest that you pay towards the mortgage is tax deductible, making for a more prudent tax planning.
One final major benefit of being a commercial building owner is that if by chance you happen to buy a large enough property that more than houses your business, the vacant premised can be let out to tenants. This brings in additional revenue as rent and spreads your risk. Currently there is a severe shortage of office space in Auckland so the chances of being able to rent out spare space are quite high.
The disadvantage of commercial mortgages
As with any type of loan, a commercial mortgage has its limitations too.
Firstly, most deals have to be started off with a down payment. For a commercial building this is typically 40% of the value of the building as most lenders will only go to a 60% mortgage.
This can be a substantial amount of money to be paid out at a one time. It can be even more stressful if you could use that money to invest in your business. What return could you get from growing your business compared to the saving in rent?
If your business is one that is seeing fast growth, then buying your building may not be a good idea.
This is because of the difficulty, costs and time necessary to dispose of any property but this is magnified when trying to sell a commercial property.
Further, being a landlord comes with the added responsibility of making sure that tenants maintain their premises, carry out regular fit-outs as required by most leases and that of course they pay their rent on time. This may cause an additional burden to a person who already has a business to run.
The costs involved with a commercial mortgage
Due to the risks and the costs involved, a commercial mortgage often carries a higher rate of interest compared to other types of mortgages like a residential home loan. No business can be a guaranteed success, and if your tenants are not able to make the rental payments, you are left to carry that repayment cost to the lender.
The legal costs for buying a commercial building are also much higher than for purchasing a home. You need to factor this into your initial costs. The legal fees associated with the leases though are usually paid for by the tenant.
Who should go for a commercial mortgage?
Seeing as the value of commercial premises rises as the rent increases and the value of the property is improved, it makes an attractive investment to certain types of people.
If you have an established company with strong cash-flow, then you could consider taking out a commercial mortgage to buy the building that you use for your business.
Another ideal opportunity to invest in commercial property by means of a commercial mortgage is if you have a Family Trust which has a strong capital base. It is common in NZ for Trustees of trusts to invest in commercial property to provide both capital growth and a solid rental income.
Obtaining a commercial mortgage
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The world of commercial property investment is very different from buying a rental house. For example, the requirements for a commercial mortgage in NZ are much more difficult than a residential mortgage. For one thing, the deposit is usually 40% so you must have a much bigger amount of spare cash you can invest.
You also need to understand how leases work, the notion of Capex, commercial property valuations and many more.
One way to get going is to talk to an Auckland commercial mortgage lender such as Global Pacific Finance. They arrange finance deals of all types including commercial mortgages for investment or property development. If you are thinking of buying the building you operate from or want to get into commercial property investment, give them a call or visit their website to start with.