How to Use the Equity in Your Commercial Property

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Equity-Release

RESIDENTIAL PROPERTY INVESTORS commonly release equity in their homes in order to invest in other property. But can you do the same with your Commercial property?

Equity in Commercial Property

It is possible for you to utilise the equity in Commercial property … but it is a bit more difficult and complex than with residential property.

Banks are more risk-averse to Commercial property funding than they are to the residential market. And they will want to have some measure of control over the use of funds — before releasing cash to you.

Unfortunately, non-bank lenders and private lenders are just as averse to ‘cash-out’ facilities against your Commercial property. Mainly because these facilities do not guarantee the desired return to investors.

So what should you do … if you have equity in your Commercial property and wish to invest further?

Two Ways you can Release your Commercial Equity

1. Re-draw Facilities

If you are looking to expand your portfolio of Commercial properties, access to funds is every bit as important as interest rates and costs. You can request a facility with some form of re-draw available.

That will allow you to pay down a loan and then draw on it again up to your limit.

If your bank or lender does not offer that facility, you may need to re-finance to a more flexible provider.

A bank will generally require some form of evidence of the purpose before releasing funds. But the level of information required will differ from bank to bank.

2. Lines of Credit

Does your investment requires easy access to credit (for example, you are a share trader)? Then you can consider a funder that allows a line of credit facility secured by a Commercial property.

There are a small number in the market and using them mean paying a higher rate on your debt.

When considering the most appropriate loan product, you need to look at the use of funds and the potential for profit through using this equity. And compare it to the cost of leaving the equity idle.

Relationship Management: Keep a Good Relationship with Your Bank

Banks are generally less flexible with allowing use of equity in Commercial property. Although, if your Commercial property loan is currently with a major bank, then ensure that you are maintaining a strong relationship with your banker.

Many changes have occurred in the mortgage sector over the last 10 years. But business banks are still largely run the old fashion way — through individual decision makers and relationships.

Bottom Line: You need to maintain a good relationship with your banker and make sure your loan is in good standing. Because you will stand a much better chance of getting assistance when you want to invest further.

Major banks will allow redraw facilities on certain products. But it is generally subject to sign off from your banker — so it pays to be nice to them!

Perry

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Comments

  1. Hi James

    Presumably, the property you have is based in the UK – but the principles of the same.

    You should be able to take out and interest-only loan (based on the current value) for
    a period of three years. You would then simply repay the old loan; and could use the
    balance for further investment.

    Regards … Chris

  2. James Dempsey says:

    We own outright a commercial property in Slough the present tenant has 3.5 years left of a 10 year lease the property is on a main thoroughfayre and the overall condition is excellent annual rent is set at £15600.

    Would it be possible to borrow or release equity on this investment?

  3. Everything is very open with a clear description of the issues.
    It was definitely informative. Your website is useful.
    Thanks for sharing!

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