Business Premises' Commerical Mortgage

[Stour]

I've been 'sounded out' about the prospect of buying our commercial building. Building would cost c. £200 - 250k

Our building is a state and would require a lot of work to do it up and therefore the cost would reflect that. As we can never get any work done and spend lots of time arguing about guttering and window frames with wet rot it's quite a tempting idea. Especially as we're thinking that we might well need a bit of expansion room soon.

The building also includes two other units. one of them has been let for a long long time to one company and the other has been vacant long term (my potential expansion space).

I'm only vaguely considering it so i don't want to start talking to people and wasting their time.

I just need some answers to a few rough questions.

• i am assuming i would need to put around 30% upfront as a deposit
• I run a limited company. would there need to be some sort of personal guarantee on the mortgage as well as the guarantee on the building?
• is it made far more complicated by the fact that i'm an owner occupier AND a landlord in one building?
• can someone give me a rough rough idea of interest rate percentages on a fixed rate repayment commercial mortgage for 10 years? i just want to understand whether our year costs would go up, down or stay the same
• do people in my situation normally keep the building as part of the business they run from there or create a separate company who would receive rental payments and pay for repairs? does this have tax implications or just add lots of extra issues?

thank you. Very grateful for any insight that anyone has.

[atmosbob]

I occupied an English Partnerships unit for many years. When they decided to sell 3 of us formed a Consortium / limited co. to buy all ten units. It has turned out to be a very good idea. Other similar estates which were sold off to separate landlords have seen substantial rent increases. My savings on rent are much more than the interest would be on the total sum. Savings on the whole site maintainance and insurance has been considerable. I would suggest adopting a terms and agreement to cover eventualities like sub-letting etc.

[bizloanservices]

Originally Posted by Stour

• i am assuming i would need to put around 30% upfront as a deposit
• I run a limited company. would there need to be some sort of personal guarantee on the mortgage as well as the guarantee on the building?
• is it made far more complicated by the fact that i'm an owner occupier AND a landlord in one building?
• can someone give me a rough rough idea of interest rate percentages on a fixed rate repayment commercial mortgage for 10 years? i just want to understand whether our year costs would go up, down or stay the same
• do people in my situation normally keep the building as part of the business they run from there or create a separate company who would receive rental payments and pay for repairs? does this have tax implications or just add lots of extra issues?

Answers as per your questions:

1. Yes - a lender will typically look for a contribution from you in the range of 25% to 40% depending on who you approach.

2. Personal guarantee - very likely. PGs are almost always mandatory today but if you have a very strong relationship with your bank you may be able to negotiate this away.

3. No - if anything it makes it more attractive to a lender ... you have a vested interest to keep the property well maintained and the loan repayments in order

4. Interest rate - you may want to think again about a fixed rate for 10 years - too long. For your calculations take a rate of 5% to 6% but also work it out for 8% to 9% to allow for future interest rate rises. It would be a mistake to calculate affordability solely on current rates.

5. You can own the property either way. Depends whether you want ownership tied up within your company (fate of the property tied in with your fortunes), or can treat it as an alternative investment with you benefiting from the rental income. Depending on your circumstance you could think about owning via a SSAS (pension scheme). It's best to speak to your advisor on the ownership options and tax implications.

Hope that helps.

[Stour]

That was fantastic help thank you both.

Rob, I'll look you out if this comes off but they're only thinking about it and they don't do anything quickly if the amount of time it took me to negotiate the lease is anything to go by.

[bizloanservices]

One more tip ... start preparing now just in case they suddenly decide to move and what to put a quick deadline on you.

This means getting your financial information up to date, management accounts in order and a Business Plan. You can never prepare too early. I recently had a call from someone wanting to raise finance to buy another business which would have been the perfect fit.

He was beaten by someone else because he couldn't raise the finance quick enough ... nothing submitted to his accountant and no management accounts, so no bank would look at it.

Don't get caught out; start preparing now, just in case.

[James Allington]

Stour

Have you thought about using a pension / your existing pension, in the form of a SIPP or a SSAS, to help you buy the building?

James