Commercial Property Loans For Pro Investors: Part 2

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Commercial-Property-2

LAST WEEK, I covered the reasons why it can be very difficult for asset-rich investors (who are no longer working or have scaled down their working) to get a loan.

Thankfully to date, the NCCP regulations do not apply to loans acquired for a commercial and business use.

Therefore, you have more options for investing using commercial borrowing, then you do for residential borrowing. The following tips will help you maintain your eligibility to borrow for longer, after stopping work.

Conduct Your Activity Through a Company Structure

If you are investing in residential property, loans for residential investment in your individual name are be covered by NCCP .

Therefore, they will need to be assessed through the home loan sections of your bank.

This means your loan applications will be run through servicing calculators.

These calculators benchmark the interest rates of your current and proposed debts (usually by around 2% above the actual rates you are paying); and reduce the rental income counted to 75-80%.

Alternatively, if your properties (and debts) are owned and conducted through a corporate structure, then you may be able to borrow through the business side of your bank.

Now you will be assessed using a much more objective process, which takes into account your unique situation and strengths.

It is advisable to consult a professional in this area, before deciding on the precise structure for your purchases.

1. Lease Doc Loans

The simplest types of loans for commercial property investors are what are commonly referred to in the industry as ‘lease doc’ loans.

With these loans, the income from the lease is used to service the interest on the loan.

This means that very little further documentation is required in order to have the loan approved.

The downside with these loans is that, unless the capitalisation rate on the property (the annual rent to value ratio) is extremely high, the loan-to-value ratio on these loans is somewhat restricted.

While, technically, there are products available up to 70%, most of these loans are restricted to 60%, due to the rental servicing factor.

These products are available through a few banks and non-bank lenders.

2. Non-Recourse Loans

In some situations, it may be possible to borrow through a company and not provide a director’s guarantee.

These loans are common with property syndicates borrowing against Commercial property. However, it is a little known fact that individuals may also be able to utilise these facilities.

As with lease-doc loans, rental income needs to service the debt. Therefore, your LVR is usually restricted to 60-65%.

3. Mortgage Funds

With bank term deposit rates so low at the moment, lending against property has become a far more attractive option.

And as a result, the few mortgage funds that survived the GFC are (in many cases) far more cashed up and able to lend at competitive rates.

If you are looking for simple lending facilities with no annual reviews or hassles associated with bank lending, this may be worth exploring as an option.

You will pay more than through a bank; but these funds will often be quite easy to deal with, once they are familiar with you as a borrower.

It may help you by-pass many of the issues, which can arise when dealing with the major banks.

BOTTOM LINE: If you are looking at scaling back your work commitments and going full time into property investment … borrowing as a company (and using these tips) may help you maintain your ability to borrow for longer.

Perry

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