I Want To Get Into Property Investment But...

Many people feel entering the property investment market a daunting prospect, and from experience many people find the funding options the most challenging, so here are some basic frequently asked questions regarding commercial mortgages.

Is it the right option to take out a Commercial Mortgage? All personal circumstances differ, but in general terms' taking on a commercial mortgage has many advantages for a business. Most obviously, you would own your own premises, not having to rely on rental contracts and at the same time own a valuable asset which would most likely increase in value over time. If or when you finally decide to sell your office, factory or warehouse you could profit from a capital gain at the sale.

In addition, financing premises with a commercial mortgage fixes your business costs. Unlike rents, which can be volatile and change regularly, a commercial mortgage gives you a repayment schedule that sets out what you have to pay every month. And, a business loan may actually be cheaper than rent. A commercial mortgage is therefore more stable and will help you to make long term plans.

Owning your own building also gives you the scope to play the role of landlord yourself. It should be looked at if your current workspace is too large or you have enough room, sublet it to another company or partition the space into several spaces and gain several tenants. This could be a very effective way of covering your own commercial mortgage payments.

So What Are The Best Advantages of a Commercial Mortgage? You mean besides potential capital gains and income from subletting, then how about tax deductions? Most businesses that pay commercial mortgage can claim tax expense on the payments, meaning tax is reduced on gross annual profits; it doesn't get much better than leaving the taxman short changed!

Secondly, taking out a commercial mortgage allows you to maintain control over your company. Rather than selling a stake in your business in return for a capital injection, borrowing through a commercial mortgage allows you to obtain the cash you need without relinquishing a share of your company.

As was already mentioned once or twice, commercial mortgages lead a more stable foundation to place your company on, without having to put up with sharp rent increases that could severely damage overheads and profit margins.

Who Is Responsible For The Commercial Mortgage Repayments? That all depends on how you have structured your business, though it still roughly follows the same set up as residential mortgages. Sole trader will have all liability and responsibility on their shoulders for the commercial mortgages, partners in a company will be responsible as a pair but also individually.

In a company however, all directors in the business become liable for an outstanding commercial mortgage. Individual directors will have to agree to take on the personal responsibility for the commercial mortgage by signing a director's guarantee, these will be essential.

How Much and Over What Term Can I Borrow? Commercial mortgages have a shorter term than residential, having a maximum term of 20 years; this could be reduced to 15 years if the building is quite old. Interest only mortgages are available, but they will only generally be interest only for the first few years of the mortgage and then revert to a capital mortgage, to help the business get up and running.

You'll have more success acquiring a commercial mortgage the LTV (Loan to Value) rate is, the higher the deposit, the lower interest will be and approval is more likely. Deposits for commercial mortgages tend to be higher than for residential mortgages, minimum deposit will be 20% with the average reaching no higher than 30%. But like I already stated, the more you can deposit up front, the better for you and your business in the long term.

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