Buying business premises or commercial investments – things to consider
Owning your own premises can be a great way of growing your business. With a Commercial Mortgage, you can benefit from any increase in the property value and you don’t have the constraints that can be associated with renting.
Do remember you’ll be taking on some additional risk and responsibility when owning a property. If you rent your premises, you can move quickly and easily, but you are vulnerable if your landlord decides to sell the property.
Buy to Let and Holiday lets
With the boom in staycations and stamp duty holidays, the popularity of buying a property for holiday lets has grown during the time of the pandemic.
Whether you are buying a single property or adding to an existing property portfolio, the opportunities to arrange competitive finance options are growing.
Here at Finpoint, we have a team of business specialists who can help you explore the options available from our panel of specialist lenders.
Things to think about
Choose the location carefully
Pay as much attention to the location of your commercial premises or investment properties as you would when buying your own home. Will the location work positively for you, your staff, and of course your customers.
Rent or buy?
The costs of buying a commercial property, particularly with a mortgage, will likely exceed the cost of renting the same property.
A deposit will be needed to secure a loan and remember to budget for the ongoing maintenance of the property and running costs. Some of these costs, particularly with holiday lets, can be tax-deductible. Please confirm the availability of these with an appropriate expert.
Keep flexibility in mind
If all goes well, your business is likely to expand and change during the time that you own the property. Make sure you choose a commercial premise that can be adapted as your business grows.
You should consider retaining the option of sub-letting part of your premises. This can be an excellent way of raising additional income. Do make sure your loan provider allows sub-letting as part of your loan agreement.
Alongside your loan interest costs, there are other fees to consider when arranging a loan. Make sure you include it in your budget.
- Arrangement fees: These normally come in at 0.75% to 2.5% of the overall value. This could also include a commitment fee on acceptance of the mortgage offer.
- Valuation fee: lenders will engage an independent valuer to conduct their own assessment of the property as a condition of an offer, so be sure to ask if this applies.
- Legal fees: commercial mortgages are often more complex than residential, so the legal fees tend to be higher. In addition to your own fees, there may be some costs you need to cover for the lender. Find out how this works upfront to get a clear picture of total costs.
What other options are there?
The current lending market is giving businesses more options in terms of commercial mortgages;
- Short-term options: Bridging or development finance can be a useful short-term option, generally provided over 12 to 18-month terms. These options, though traditionally more expensive than longer-term loan options, can be a good route to “getting the deal done”. You can seek to refinance the loan onto a longer-term basis as a method of repayment.
- Funding for an auction property with existing assets: If you have equity available within an existing property asset or portfolio of assets, this can offer a flexible route to arranging finance in anticipation of an auction purchase. A number of lenders are prepared to “sit behind” any existing mortgages you may have in place, as long as there is sufficient equity within the value of the asset being used.
- Purchasing commercial property using your pension: Buying a commercial property through your pension fund can be tax-efficient, but this comes with its own risks. There are two varieties of investment-regulated pension scheme used to buy commercial property – self-invested personal pension plans (SIPPs) and small self-administered schemes (SSAS). We can give you a high-level overview, but for further advice please contact an expert who can review your situation and provide tailored guidance.