Financing first commercial property investment

[belowdeck]

I currently own a property worth around £220k and have a small residential mortgage of about £10k remaining. I also own a BTL worth around £115k which I rent out for £600 PCM and have a £60k interest only BTL mortgage on.

I am looking to buy a commercial property but unsure of how to finance it exactly, so looking for advice.

Based on my current situation, how would I finance a £350k purchase with £60k savings. Is there a way I can raise the money from existing property and use commercial mortgage for the rest?

[wisbech]

Think you will find commercial property mortgages start at 25% deposit, 20% at a stretch. So you need another 20-30 thousand savingd

[JulianPH]

If you have a pension with £235k in it you could use this to buy the £350k commercial property very tax efficiently.

Other than that Sarnie can point you in the direction of a good commercial property mortgage broker.

[jonny70]

belowdeck said:

I currently own a property worth around £220k and have a small residential mortgage of about £10k remaining. I also own a BTL worth around £115k which I rent out for £600 PCM and have a £60k interest only BTL mortgage on.

I am looking to buy a commercial property but unsure of how to finance it exactly, so looking for advice.

Based on my current situation, how would I finance a £350k purchase with £60k savings. Is there a way I can raise the money from existing property and use commercial mortgage for the rest?

Your probably best remortgaging your home for the deposit.
Commercial mortgages are normally 70% max LTV.
A large factor on the decision of the mortgage can be the current lease/tenant ?
Example
Is the property Vacant? Can the landlord afford the rates? (Big risk if lots of vacant property in the area)This may mean 40% deposit and higher interest rate
If it’s a solid blue chip tenant like Starbucks with 10+ years left on the lease then you may get a higher LTV and a lower interest rate.

What type of commercial property you buying and is it an investment or development ?

Edited by jonny70 on Friday 27th December 15:43

[Tresco]

I doubt any lender will lend much more than 50% LTV against commercial property and think you'll struggle to find anybody interested in what they will judge to be such a small deal unless it's part of a bigger picture.

I'm refinancing a commercial portfolio at the moment but there's not much appetite out there for commercial lending unless there is a track record in commercial property and access to cash, remortgaging your existing resi to raise funds won't tick their boxes.

If it's a good deal then you might consider syndicating it or looking for equity partners - post the details up, you don't have to disclose location.

[jonny70]

Tresco said:

I doubt any lender will lend much more than 50% LTV against commercial property and think you'll struggle to find anybody interested in what they will judge to be such a small deal unless it's part of a bigger picture.

I'm refinancing a commercial portfolio at the moment but there's not much appetite out there for commercial lending unless there is a track record in commercial property and access to cash, remortgaging your existing resi to raise funds won't tick their boxes.

.

Is it really that difficult to get a commercial mortgage?
Been researching commercial property investment the past 6 months and hoping to buy my first one sometime in 2020.

[Helicopter123]

JulianPH said:

If you have a pension with £235k in it you could use this to buy the £350k commercial property very tax efficiently.

Other than that Sarnie can point you in the direction of a good commercial property mortgage broker.

This.

[Tresco]

Helicopter123 said:

JulianPH said:

If you have a pension with £235k in it you could use this to buy the £350k commercial property very tax efficiently.

Other than that Sarnie can point you in the direction of a good commercial property mortgage broker.

This.

Because you can do this doesn't mean that you should.

I have a property in a sipp, the costs were high to get it in there and the annual costs are not insignificant - yes I know you're cheaper Julian!

More importantly there are costs in holding empty commercial property and whilst upwards only rent reviews are at the moment still commonplace, achieving meaningful increases is a challenge, the reality is that if you lose a tenant or the lease expires the new market rent is often less than before which reduces the property value causing LTV issues.

Buying in desirable areas can negate the above but then the yield falls to around 6% and no matter how tax efficiently you borrow money that's getting tight.