How to become your Own Landlord
In my last GLOBAL UPDATE I said the next issue would be about innovative finance for property Investment.
But since then I’ve had so many inquiries about how to purchase your own business premises - resulting form the previous newsletter on obtaining finance for SMEs - I thought I’d expand on the GLOBAL UPDATE I produced on this subject last November.
There are many advantages in buying the premises from which you operate – the major benefit being owning your own premises allows you to pursue a long term investment strategy. This includes:
- You can separate the ownership of your business and the ownership of the property into two separate legal entities.
- If you’re a business owner with an established business you can sell the business and receive passive income - confident the new owner will continue to pay the rent.
- You can be sure the landlord doesn’t increase the rent at the expense of the profitability of your business.
- You can retain control of a strategic site – no longer are you at the mercy of the landlord throwing you out at the end of your lease.
- The valuation of a private business is extremely difficult to determine. The valuation of the property which a business leases is easy to determine – simply being a function of the lease. This means you can justify the value of your total business assets far more easily.
- There’s no real downside if your business fails. You can always find someone to rent the premises you now own.
- As the owner of the business if the rent goes up, the income and value of your business goes down. As the owner of the property if the rent goes up the income and value of your premises goes up.
- If you have other third party tenants in your building this strengthens your long term investment and your ability to finance the purchase of the property.
So if you’re interested in becoming your own landlord, I can help you get the finance you need to do it.
At Global Pacific we have arranged access to new, innovative property finance products that will allow your business to fund the purchase of your own commercial property without the suffocating restrictions most business lenders impose.
Let me explain.
In the past it’s not been easy to obtain the finance to buy your own premises. When you’re an owner occupier the lender has to consider the strength of your business, and its ability to pay the rent, rather than just the income from a lease to a third party.
Traditionally banks have been the main providers of funding for business owners not wanting to pay rent for ever.
So you have to:
- Give a GSA to the bank (debenture security) over your business assets as well as the property itself.
- Be subject to cross guarantees and cross collateralisation of securities - often including your residential home.
- Make principal repayments - putting your business’s cash flow under pressure.
- Normally borrow up to only 65% of the purchase price or valuation of the property - whichever is the lesser.
But now in this new competitive environment, I can arrange finance for owners of businesses that will allow you to:
- Borrow up to 80% of the value of the property you wish to purchase - or 100% if you have good revenue streams.
- Borrow against the valuation – not just purchase price.
- Make early repayments without penalty.
- Make interest only payments – and have the benefit of property ownership without the impact of principle repayments on your cash flow.
- Set up a revolving credit facility.
- Preserve your existing bank facilities for business borrowing.
- Pay competitive interest rates – comparable to prime lending rates.
- Set up your own property owning entity discrete from your trading business.
- Set and forget – loans not set to expiry of leases, no annual loan reviews.
- Enjoy the potential gains that can accrue from commercial property investment.
The secret in obtaining the best own your own business finance is finding the right financier, or combination of financiers, to satisfy the specific requirements you need - including those listed above.
To find out more about how you can Become Your Own Landlord simply reply to this email with your name and contact phone number or phone me on 09 303 3700 or 021 902 004.
So now it’s in the next GLOBAL UPDATE that I’ll be looking at innovative finance for property Investment.
Cheers
JP