Owner occupied commercial mortgage ?

Just a query - do banks treat owner occupied commercial mortgage applications differently. Eg. 80% ltv and better rates.

Opportunity has arised to purchase the building I occupy at a good price and I could be close to having the 20% value (+stamp duty)

Can only see 70% ltv for investment mortgages

Commercial property is treated completely differently to residential.
You'll need to contact a few banks to discuss.

Hello,

To an extent, yes, banks will take a different view. The sector that your business operates in and the financial success of your business, will be factored into their considerations.

Subject to the loan being over €500k, you can expect a cheaper rate than if you were a commercial property investor.

Again, subject to the financial performance of your business, you may be able to borrow more than 70% LTV, albeit it may come in the form of a second loan, for a shorter period and perhaps, at a marginally higher interest rate.

This will be a more challenging time to get a loan, given the impact of coronavirus on many businesses, but give the big three banks a call - all should be open for business, even if it takes them a bit longer to process your application.

No disrespect intended, but do ask yourself if this is really a good time to buy, or if there's a chance that you could get the same, or a similar property cheaper, in a few months time.

Thanks. It gives me something to think about. Property sale price is under 500k, so loan would be under 400k.

I'm primarily an online business and it's been a very strong period for us and accounts for last 3 years have been positive (we mostly moved out of retail 3 years ago)

Location is perfect, and very "rentable". Going on recent lettings, my rent could jump substantially in 3 years (review) and price being asked for building is 12x current rent.

So it's an opportunity that is unlikely to come up again.

Let's say you are paying €480k for it.
Current rent is €40k a year

If you borrowed the full €480k @6% , it would cost €30k in interest. So it makes sense to borrow at 6% to buy it.

You have about €100k of it. So you are getting a return of €10k rent on your €100k investment. That is a great return.

And there are huge advantages to owning the property you operate out of. There is no hassle with landlords arguing about whose duty it is to insure something or fix something. If you want to extend it or refurbish it, you won't need permission.

You won't face potential rent increases and expensive and difficult rent reviews. Of course, you will be subject to interest rate increases.

What are the downsides?

If business increases, you might outgrow the property. But that would be a nice problem to have.

If business decreases, you might be stuck with too big a building. But with a lease, you face that problem anyway.

If your business operates through a limited company, makes sure that you buy the property in your own name and rent it to the company.

If you have a mortgage on your family home, see if you can increase the mortgage to help you buy the property.

Don't forget that if you borrow an additional €100k on your family home, the interest on that €100k can be set against the rent received for tax purposes. It is the purpose of the loan, and not the property on which it is secured, which determines the tax relief.

Brendan

Thanks Brendan. That's great info and makes it worth going for.

Brendan Burgess said:

If your business operates through a limited company, makes sure that you buy the property in your own name and rent it to the company...

Click to expand...

I would respectfully suggest that peemac give some thought to that one.

Let's not forget, rent charged to a company will be subject to tax at the higher rate, post deduction of tax allowable expenses. Granted, I'm assuming that peemac is currently earning enough, to place him / her in that higher tax bracket.

The loan amount will obviously impact on the level of rent that needs to be charged to the company, so if you gross the loan repayments back up to allow for tax, can the business comfortably afford to pay that level of rent?

What about acquisition costs such as stamp duty (7.5%), legal fees (quite possibly for both the borrower and the Bank (say 1% in total), the cost of a professional valuation (say 0.65%)? Does peemac have sufficient resources to cover these costs in his / her personal name already ? If not, where does this additional €40k or thereabouts come from? If peemac takes it from the company, its subject to tax and again, most likely at the higher tax rate, so it may well end up being closer to €60k that the company needs to pay out. If so, can the company afford that, without having a negative impact on its working capital?

Some food for thought, perhaps?

Thanks @MrEarl

You have it spot on. Whilst I have (courtesy of KBC tracker) a liquid investment in the company, to take that out and more, is not feasible.

For my situation, the company purchasing the building is the only realistic option.

The company has very little debt and would be low risk of any major debt appearing due to how it operates.

Bank would only give 70% if I bought it personally, but are willing to look at 80% subject to 2019 accounts being presented for the purchase by the company.