Buying your first commercial Property - How do I finance my purchase?

Buying your first commercial Property - How do I finance my purchase?

From Len Pears, Director of Quagga Property Brokers

Buying a commercial property to conduct your business, whether to produce (factory), store (warehouse), or to sell (shop), is substantially different to purchasing a residential property. The primary reason for purchasing commercial property is to utilise the property in the generation of an income. Whether by placing a tenant in your property and receiving rental income, or producing your own income as an owner-occupier, you will be generating revenue. In addition to this, whether you are an investor or an owner-occupier, you will achieve capital growth on your unit. Your revenue-based return, coupled with capital growth, makes commercial property an attractive hedge against inflation. How then does one finance this acquisition?

If you’re paying cash it is quite straight forward. The banks, if you want to finance the purchase, view commercial property differently to residential property. When buying a factory, office or retail shop you’re going to pay a bigger deposit than when purchasing a residential property. The norm is to pay a deposit of around 30% - 35%. The banks generally call for this bigger deposit as a security measure. The balance would be loaned to you by a bank at around 1% below prime to 1.5% above prime dependent on the financial strength of the borrower, with a 10 to 15 year repayment period. If you’re an investor and deriving an income from your growing commercial portfolio you can then use your net rental proceeds to further grow your portfolio. Your cash proceeds could be used to finance multiple further deposits or to purchase units outright, depending entirely on your own investment profile.

When developing your strategy note that successful business owners often use their business to generate revenue and develop a property portfolio for creating a passive income wealth over the medium to long term.

For more info and advice on purchasing your commercial property please contact Len Pears on 021 712 8825 or visit www.quaggapropertybrokers.co.za