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Jeremy Lofts: Business Advice column - 02/06/2009
Q. I want to purchase a local shop unit as an investment for the future, and I have seen one which looks suitable and is being marketed at a reasonable price. It will need some work before I can let it out. Can I get a mortgage, even though there is no rental income at present?
Q. I want to purchase a local shop unit as an investment for the future, and I have seen one which looks suitable and is being marketed at a reasonable price. It will need some work before I can let it out. Can I get a mortgage, even though there is no rental income at present?A. At face value your plan is speculative, with some risk that the cost of the refurbishment could exceed your expectations, and further risk that you may not find tenants as quickly as you would hope. Should it then become necessary to sell the property, as the financial pressure mounts, a loss could result to you or the commercial lender, not least because potential buyers are always on the lookout for enforced sales enabling them to drive a hard bargain.
Lenders like reasonable certainty, and would therefore view this proposition with considerable caution. However, if you can demonstrate that you have fairly assessed the risks, and that you have a sizeable deposit, plus sufficient existing surplus capital, and/or income to at least to cover the expected mortgage payment costs for a reasonable period of time, then you may be able to find a financial institution willing to take on your request. A detailed business plan showing how you can make this commercially viable would be a good start. This will ensure that you are double checking your initial figures before approaching a lender.
Q. I was recently looking in a commercial estate agent's window and there seemed to be some very reasonable prices being asked, but is now a good time to consider commercial property investment?
A. The commercial property market has taken a severe drop in price over the past few months, in some areas by well over 30 per cent. There could be further falls to come, so you would need to build these into your business plan and see if the proposition is still viable. But for those with cash and confidence this clearly represents an opportunity to purchase some good value property as compared to the market 24 months ago. As always, maintain a broad spread of investments for relative safety and do your homework on any property you may consider such as likely rental yields and demand if the property was to become vacant in the future. If you need to borrow money to enable you to purchase commercial property it would be very wise to ensure that you are able to do this before parting with any money for deposits or legal work. Either seek the advice of your local bank or building society or a commercial mortgage broker who will be only too happy to advise you with any prospective purchase.
Q. I am currently looking at purchasing a commercial unit for my computer business. My mortgage broker has told that he has had an "agreement in principle" from the lender who is looking at my application, but is this legally binding?
A. Generally no, and the potential lender will have used terminology to ensure that this is the case. An agreement in principle gives an indication of the likely outcome of a mortgage application. It is not a formal offer, but subject to further checks to validate the information that you have provided, it may form the basis of a formal offer. However, if external events cause any change in circumstances to either party, a potential lender is under no obligation to lend on the indicative terms.
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