The decision to invest in property for your new business is exciting. Yes, it’s a risk and an expense, but also represents a bricks-and-mortar expression of your belief that the company is here to stay for the long haul. However, finding the correct business property and the right mortgage arrangement is vital.
In a perfect world, you’d have the mortgage set up and ready, so that when the correct business property arrives on the market, you are poised to strike. However, this is often not the case, and instead you may need to move quickly without a mortgage in place; for example, if a popular property suddenly arrives on the market, or you spot an opportunity at an auction.
In this case may be appropriate, which is a stop-gap solution that allows you to secure a property before formerly securing a mortgage for it. However, it is not a cheap solution, so act quickly if this applies to you.
Be careful when buying a building. Look at property prices for similar premises nearby and compare them to any potential buildings of interest. Consider if there’s room to expand (if this is something you may wish to do in the future), as well as parking, crime rates, closeness to amenities and other relevant concerns.
You may be able to get a mortgage term of as much as 40 years, but 15-30 years is far more common. As with residential property, the larger the deposit the more likely that you’ll find more favourable interest rates. Note that you almost certainly won’t be able to find any definite mortgage terms for commercial properties online, simply because all lenders assess each case individually.
Your deposit is likely to be higher than for a standard personal mortgage – probably at least 25% of the cost of the property although sometimes more. Arrangement fees for the set up could be around 1-2% of the value, and there will also be surveyor’s fees. A survey could be crucial to getting the mortgage in the first place, especially if it is an older building, as it should identify any underlying structural problems that makes the lending a riskier prospect.
Stamp duty is levied as an extra 3% tax on top of current, residential stamp duty when buying a building to rent out.
After finding a mortgage for your business you’ll now be avoiding the danger of landlords potentially deciding to put up your rental prices, though you will now be a hostage to any alterations in interest rates, so be aware that if you take on a variable rate as it could rise as well as fall. Also remember that you’ll now be paying for all maintenance on the building, and any relevant insurance as well.
The fact that you own the property also gives you much more freedom to change the building – notwithstanding any planning permission that’s needed from a local authority if you want to make big changes – so you can redecorate or refurbish or alter the rooms in another way.
You may even partition the building and sublet sections out to other companies, or let the entire building out and gain a regular income while taking advantage of potential price rises when you come to sell in the future. Be warned that if you’re planning to become a buy-to-let landlord you can now be charged 100% council tax, after an announcement in the latest budget.
This is by no means an exhaustive list of the issues that face the first-time commercial buyer, but some of the main considerations. Do your research, find the right deal, and you’re far more likely to find the perfect property for your SME.
First time buyers guide to business property – words Alexa Wang
Source: Flux Magazine