Financing Property Purchases and Developments
There are many different products available to finance commercial property purchase and development.
Commercial mortgages can be used to purchase shops/offices and warehouses. Working in the same way as residential mortgages they spread the cost over an agreed period.
The most common commercial mortgage is an existing business buying its own premises where they operate from. This allows you to stop paying rent and start paying back the commercial mortgage to eventually owning the property outright.
You can sometimes obtain 100% finance if you have a good trading record and additional security.
A commercial mortgage might be suitable for an experienced landlord who wants to buy further properties and place several properties on one mortgage.
Properties bought at auction usually have to be paid for within 28 days, there are lenders who specialise in auction finance. This is much quicker than obtaining a commercial mortgage but interest rates are higher due to the short-term nature of the finance. Usually, owners will remortgage in due course on to a standard commercial mortgage
Some lenders will give you an agreement in principle prior to an auction, this usually has conditions such as the type/condition and price of the property.
This type of lending covers any short-term finance to cover building and development costs. Usually, this type of finance runs for 3- 24 months with interest charged on a monthly basis. Used to cover the funding gap where a property has been purchased and the mortgage is not in place.
Development finance covers both land purchase and building costs. A lender will look to finance a percentage of the land purchase and the building costs. The Gross Development Value (GDV) will show the return on the project at the end of the development, whether it is a refurbishment of an existing property or a full build of a property from an empty piece of land. Lenders are repaid from the first properties sold.
You need to assess your project as to costs, land purchase / build costs/sale costs in best and worst scenarios. You then need to find the right finance to take the project forward at the outset.