Finance For Commercial Premises

THE QUESTION

We are looking at a large fish and chip shop, rented out at £750 pcm, with about 10 years left on the lease.  The building also has two large flats above the shop – both currently empty.  Can you recommend a commercial mortgage provider?

THE ANSWER

There is more than one way of approaching this.

Having 10 years left on the lease is good and will give you brownie points with commercial lenders. However, they won’t be happy with the 2 two empty flats. With commercial mortgages, lending is based on a multiple of the rent income - those two empty flats are going to hit what you can borrow.

This means you’ll need to put in a way bigger deposit than you would if they were tenanted and contributing to the rental income. To the point where you may struggle to come up with enough cash to get the deal over line - unless you are flush with cash.

Are these flats in a ready to rent condition? If so, could you line up tenants and get their ASTs signed, even though they couldn’t actually move in next week? Do that and you will significantly reduce the amount of deposit commercial lenders ask for.

If those flats aren't in a rentable condition and need a refurb, you would probably be better to fund the purchase with cash or bridging finance, fix up and rent out the flats - then apply for a commercial mortgage on a fully tenanted building with a much better chance of getting a 75% LTV mortgage.

Here is a video on my YouTube Channel discussing "How Do You Buy a Commercial Property"

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