Commercial Mortgages in Auckland
Buying commercial premises seems to be overlooked by many people or business owners. Although at first it may seem more advantageous to rent your business premises and obtain a short-term lease for a property, in many cases, the reality is that you will obtain more benefits from buying the building you occupy. In case you have an interest in buying a property, read this guide to learn what is the best way to obtain a commercial mortgage in Auckland.
What are the advantages of a commercial mortgage in Auckland?
The advantages are numerous. First of all, it is important to recognise that the payments on a mortgage may be similar to the rent you are already paying for your premises. The difference is that there is a big benefit by taking out a mortgage and that is that, in the end, you will own the property. That will mean you do not have any rent to pay to a landlord once you become the outright owner. Further you will have another asset in your wealth portfolio.
Another downside to renting offices or a commercial building is that you are always subject to constant rent increases. While you can negotiate these, that takes time and cost plus you know that the rent is going to go up over the years however good your negotiation skills maybe. So choosing a commercial mortgage will offer you cash-flow stability.
Another benefit is that the interest on your mortgage payments is tax deductible. This gives an attractive option helping you to reduce the yearly tax burden. In case you are the owner of many commercial properties, you will have the option of sub-letting your properties, although you might need the permission of your lender.
What are the disadvantages?
The first and biggest disadvantage is that you will have to make a significant down payment for the property. This is considerably more than a residential deposit which is currently 20 per cent. In the case of commercial mortgages, the deposit is usually 40 percent of the value of the building or premises you want to buy. This may be money that you may not be able to call upon or it is set aside for other initiatives on your company.
If you are not a stable business or your business is growing rapidly, a commercial mortgage is not the best solution for you. It is not easy to sell a commercial building, the process can take many months. This can hinder your move to a new location. It will also tie up your capital preventing you from buying a bigger office or whatever type of building you are looking for.
Another important disadvantage is without a doubt related to the responsibility involved, as you are the only person involved in up keeping and maintaining the building according to standards. If you rent a part of the building or offices you work in, then you will be sharing the costs of the upkeep and repairs. If you own the building out-right then you will be liable for all of the maintenance expenses.
What are the costs?
In general a commercial property will have a higher interest rate than a residential mortgage, mainly because the overall value is higher and the risks are far greater for the lender. No one can guarantee that a business will succeed, and this is why the lender is obliged to ask for higher rates. Other than that, all other payment methods and terms are similar to those of a residential mortgage. Although almost all banks and lenders do offer these commercial mortgages, it is important to do a little bit of market research before making a decision.
Who should benefit from a commercial mortgage?
This depends on your future business plans. If you are confident in your business and its chances of success, then this type of finance is perfect for you. Another advantage is that, in the end, you will be able to own the property and maybe have enjoyed an increase in property prices. A further scenario for benefiting from a commercial mortgage is deciding who will actually own the premises. For example, it is common for people to set up a new company that owns the building and then rents it to the actual trading company and in so doing, gives you a separate income stream. Or you can establish a family trust which raises a commercial mortgage in Auckland to own the building. In this case the beneficiaries will have a rental income.
Where can you find a commercial mortgage?
The main banks have commercial lending departments but they tend to be quite rigid and inflexible in their lending criteria. They are also reluctant to lend on specific types of commercial property so you may need to look at different options.
The good news is that there are also more smaller finance houses operating that can provide commercial mortgages than in the residential field. These can provide funding for a range of different projects and they are certainly more amenable than the regular banks.
These lenders will also have a big range of costs, interest rates, down-payments and other factors some of which will be more attractive to you than others. For example, would you prefer a lower interest rate or a smaller deposit? You can negotiate these options for a commercial mortgage in Auckland with specialist commercial mortgage lenders far easier than with a bank.
Global Pacific Finance http://www.globalpacific.co.nz/