Commercial premises with residence above

[katyusha]

Hi all,

A friend and myself are looking into buying a commercial premises and the apartments above it (the latter on an owner-occupier basis, albeit with some rooms rented out). We intend to operate a business ourselves rather than lease the premises, but for various reasons want to keep the whole property as a personal asset rather than putting it (or even just the commercial premises) in the name of our company. Given the mixed use of the property, what sort of mortgage could we get/should we be looking for?

I've been through the mortgage process before but with a more straightforward property, so this is uncharted territory - any advice would be much appreciated!

 

[Brendan Burgess]

Hi Katy

Whatever the plans, you are better off putting the premises in your own names rather than in the company's name.

Given the complex nature of what you are planning, make sure that you do up an agreement between yourselves on the property. You could fall out personally. The business might want to move to a separate premises. This could get very messy.

You can minimise the mess by doing an agreement between you well in advance of any problems.

Brendan

 

[katyusha]

Thanks, Brendan. Absolutely agree with everything you've said.

1) We're definite about keeping the premises in our own names rather than the company's.
2) We've spent considerable time thrashing out every conceivable (and inconceivable) snag, change of plans, fall out and foul up (all the way from "What if I want out in a few years' time?" to "What if I didn't like the paint you chose.. and came at you with a knife?") and there'll be a ruthlessly iron clad legal agreement drawn up, signed only after each taking legal advice independently of the other. I've seen as little as a fiver cause issues between friends, so we'll be taking no chances!

We have sufficient capital to go 50/50 on the deposit and the business start-up costs, so we should be able to avoid the extra hassle of seeking a business loan on top of the mortgage.

Really, at the moment we're just a bit lost about where to start looking for the finance we need. Can we look at 'standard' mortgages for the whole property, or will we have to get a commercial mortgage? If so, can we somehow treat the property as two (in fact, where we're looking, the business premises is self-contained and could be treated as a separate entity), and get a residential mortgage on the apartments? I'd just like to have some sense of what the possibilities are before I go making enquiries of various lenders.

 

[LDFerguson]

In doing this, are you starting up a new business in the premises, or are you transferring an existing business that you and your friend already run?

 

[Setanta12]

Get tax advice. It used to be the case that commercial properties sold with higher stamp rates than residential properties so in situations such as these - fado, fado 4-5 years ago - there were two contracts/sales.

(This could have changed since then)

 

[katyusha]

@LDFerguson: We will be operating the same sort of business out of the premises as has been there previously, but it will be new in all other respects.

@Kildavin: As far as I'm aware, the stamp duty is 1% on residential and 2% on non-residential property. I knew the overall value would have to be somehow broken down for the purposes of calculating the duty but didn't realise it would necessarily effectively mean two sales. Thanks for the info.

 

[LDFerguson]

@LDFerguson: We will be operating the same sort of business out of the premises as has been there previously, but it will be new in all other respects.

I think you'll find it difficult if not impossible to find a bank that will lend you money to buy a property when you're effectively starting a new business at the same time. It might be possible if the existing business has strong Certified Turnover figures (that you can provide to the bank) and you have proven experience of running a smilar business.

 

[dewdrop]

I am not a professional in this area. Should not OP consider buying a property without rented accommodation so as to avoid potential hassle with the tenants. Also while i appreciate usual advice is to buy in personal names one would need to consider the protection a limited company gives in event of legal and financial issues that could arise in future.

 

[katyusha]

I know we probably appear to be punching above our weight and we're aware that there are many factors that are not in our favour.

On the other hand, we do have prior experience, and a similar business has existed successfully on this premises for decades. We have made inquiries re. getting the figures and are waiting for the auctioneer to get back to us on that front - it may not be straightforward seeing as it is the building and not the business as such (the last incarnation of which was run by a leaseholder) that is for sale.

We could plough the funds we do have into leasing a premises to begin with, but there are a whole host of reasons why attempting to buy the particular property we're looking at makes a lot more sense for our current and short-term financial situation, for our vision for the business, and as a long-term investment in itself. We are also in a position that if, worst case scenario, the business bombs and the rooms somehow prove unrentable, we will still be able to meet the mortgage on the whole building through other ongoing sources of income.

 

[katyusha]

@dewdrop: Thanks for your input. While, as I said above, worst case scenario we can cover the mortgage ourselves, renting out the apartments would bring in sufficient income to cover the mortgage on the whole premises before we even open the doors of the business. That would obviously be quite a weight off a fledgling business that's already looking down the barrel of rates and renovation costs and insurance and all the rest. I have been dealing with tenants for a few years now and I think, on balance, the hassle would be worth it.

Re. buying in personal names: The nature of the business we're getting into is such that while it would be possible (if we're remarkably profligate and foolish) to run up the kind of liabilities that we wouldn't have the cash/liquid assets to meet, they wouldn't be anywhere near the value of the property - but if the property were owned by the company then we would stand to lose it. As I said above, we will always be able to meet the repayments on the property itself, so we don't envisage getting into trouble on that side of things. Hence wanting to isolate the two from each other.