A Discussion of Commercial Mortgages

If you have ever applied for a personal or residential mortgage, you may be under the false assumption that applying for commercial mortgages is equally simple. This is in fact not the case, commercial mortgages are significantly trickier to apply for successfully, let’s take a look at some of the main reasons for this.

• Commercial mortgages operate under a very different set of lending criteria to personal mortgages. If you do not understand these criteria, and do not have the time to research and learn how these criteria work, then you will find that your application will probably be unsuccessful.

• The application process for commercial mortgages can differ significantly between lenders, you will need to approach a wide selection of lending establishments to receive the best financial product for your needs, meaning you will need to track and control multiple applications that will probably follow completely different processes.

• When applying for commercial mortgages, you will be asked to submit a wealth of supporting documentation; this can include a full business plan showing the effect of the mortgage upon your company’s financial forecast, and a fully audited set of company accounts. These documents will need to be prepared in a format that the lender you are approaching requires them, as discussed above, there are very few standards across lenders, and you may well need to produce several version of each document, one for each lender.

• Individuals who are seeking their own commercial mortgages will not have access to the full range of lenders and mortgage products, only qualified professionals will be able to contact all lenders directly, requesting information about their specific products.

The best way to acquire the best in commercial mortgages is to contact a professionally qualified commercial mortgage broker. By selecting a good broker you will have access to all of the skills needed to make sure that your application is approved and you receive the best from your mortgage product. A broker will be able to assist you in creating and distributing the required supporting documentation to a whole range of lenders in one shot, they have access to a far wider range of products and are able to submit a single, unified application to multiple lenders at one time. This means the entire application process is vastly simplified. Your broker will also be able to search a wider range of products, meaning you are more likely to get the best in commercial mortgages, many of these products are made only available to brokers, without a broker you would not be able to apply for them, these are often the premium commercial mortgages, and represent the very best products the lenders offer.

To sum things up, applying for commercial mortgages is a vastly more complicated affair than applying for a personal mortgage; you would be best advised to seek the services of a qualified commercial mortgage broker to act on your behalf as your point of contact into the major lending establishments.

Nursing Home Finance - Make Sure You Have What It Takes

If you are looking for nursing home finance, it is possible that you are already in the nursing home business and seeking to expand.  On the other hand, you may be a newcomer to the business and hoping to buy your first nursing home.

If you are a newcomer, you may not have realised that the nursing home business isn’t quite as straightforward as other types of business.   Before applying for your nursing home finance, there are some things you need to be aware of.

1. First of all, consider whether you are the right sort of person to run this kind of business.  Remember that it’s not a business with precise opening hours like a pub or shop – it’s 24 hours a day, 365 days a year.  You do need an interest in working with people, and in this specific client group.  Many people who go into the nursing home business are doctors or nurses who are interested in a business venture.
2. If you are sure that you want to start in the nursing home business, you are far better advised to purchase an existing business, rather than try to convert a property and start a nursing home from scratch.  This might be a profitable venture once you have gained the experience and want to expand.  However, for a newcomer it would be a nightmare.  For a start, you would need a development loan for the conversion, and there would almost certainly be all sorts of unexpected snags with the original property.  On top of this, there are all manner of stringent structural regulations that a building has to comply with before it can be accepted as a nursing home – room size, safety factors, disabled access, lifts etc.  It would be hard for you as a newcomer to look at a potential property and assess how it would convert to meet the regulations.  You would almost certainly find you had bitten off more than you could chew.
3. Once you have found a suitable business that is for sale, the first thing you must do is look at the accounts for the last three years or so – or preferably get an accountant to do it.  If the seller won’t show you the accounts, walk away.  The accounts will show you the potential profitability of the business.  Of course, when you apply for your nursing home finance, the lenders will want to see this information.  If the business is clearly in decline, there is no point in wasting time applying for the finance.
4. If you don’t have the qualifications to register yourself as a care manager, you will have to employ a qualified person to do this job.  This will have implications for the size of the building as there will need to be adequate accommodation for both yourself and the manager to be resident.  You may decide that as the owner you don’t want to be resident.  If you aren’t resident, remember that you still have the ultimate responsibility, so you need to be contactable 24/7, and able to be there quickly in case of emergency.

When you apply for your nursing home finance, the lenders will want to satisfy themselves that you have thought all these things through.  They are all important for the success of your business and hence for the security of the loan!  Of course, they will also check that the property meets all the regulations and minimum care standards.

Recent changes in regulations have made life more difficult for nursing home owners and put a lot of people off. This means the market is wide open.  If you have what it takes, there’s no reason why you shouldn’t be able to run a very successful business.

Care Home Finance - Why Is It Different?

With many commercial property sectors struggling to survive, there is one that is currently very buoyant – the care home market.  Why should this be?  Mainly it’s a combination of two factors.  One is the rising elderly population.  The other is a shortage of care homes – many have closed in the last few years since new regulations came in, requiring more stringent conditions.

With demand exceeding supply, now is a good time to get into this market.  But if you’re looking for care home finance, you have to be aware that the care home business isn’t just an ordinary business – it’s highly specialised.  You need to combine business acumen with a real interest in, and experience of, caring for this particular client group.

So how is care home finance different from a commercial mortgage for any other kind of business?

• The lender will want detailed information about the business – location, history, accounts, potential profitability, occupancy levels, etc.
• They will look into your own suitability to run the business.  You don’t actually need care qualifications to purchase a care home, but you need to demonstrate that you are a fit person to run it and you need to be registered.  If you don’t have experience and qualifications, you will have to appoint a care manager to manage it on your behalf, and see that the property includes adequate accommodation for this.
• It’s important to ensure you have a large enough deposit.  Most estimates are that you need a deposit of about £100,000 to purchase a care home.
• Before agreeing the care home finance, the lender is likely to check that the property complies with regulations on such matters as room size and safety issues.  They will also check that you have the budget to maintain minimum staffing levels.
• The lender may want to see the most recent CSCI (Commission for Social Care Inspection) reports.  The CSCI is the regulatory body that carries out regular inspections of care homes and provides reports that are in the public domain.  If a home fails the inspection, it can potentially be closed down.

As you see, obtaining care home finance is not as straightforward as obtaining other types of commercial finance.  This is understandable as a care home is not an ordinary business – the welfare of vulnerable people depends on it being run properly.  From the point of view of the lenders, they need to know that it’s a viable proposition for you – if you can’t make a go of it, they could lose their money.

So if you’re the right sort of person, it’s a good business proposition.  But don’t go into it just to make money – there’s much more to it than that.

What is a bridging loan?

“Bridging loans” or “bridging” or gap loans are designed as a short term finance solution, secured against residential or commercial property.

Typically they are used where speed is essential, the property is being sold under-value or for whatever reason the deal falls outside of standard term lenders criteria e.g. not classed as inhabitable, due to the lack of a kitchen.

Unlike term lenders that are going to work off purchase price, most Bridging Finance providers work off the open market value (OMV).

Bridging finance lenders are really concerned with three elements:

1. Open Market Value, as verified by a R.I.C.S. surveyor. If you have had a recent valuation carried out by an R.I.C.S member, some bridging finance providers will accept a re-type of the valuation
2. Treatment of interest - are you going to service the interest during the bridge or “roll it up” into the facility
3. Exit strategy- A realistic exit strategy is required from outset, be it sale or re-finance to a long term lender.

There are minimal or no status requirements, depending on whether you intend to service interest or not.

Bridging occupies a unique place in the market, and over the next couple of years the demand for it will no doubt increase, due to some of its more adventurous applications.

Property Refurbishment Buy to Let

Over the course of the next two years or so, there are going to be some losers in the property market; those who have to sell up fast, particularly Buy to Let investors who have over “geared” their portfolios, cannot re-mortgage away from a high charging standard variable rate and are forced to sell of part portfolio’s to reduce monthly outlay. However, business is business, and wherever there are losers, there will also be winners!

We have recently be seeing a huge number of these properties coming onto the market, under value, distressed and in need of some tender loving care.

A chance to steal!

We have managed to find a number of mortgage products that will allow a purchase of a structurally sound property, which needs, say a new bathroom, kitchen and decorating “make over”. Providing that the property has an existing usable bathroom and kitchen, however poor the condition, this product seems to fit.

Most ordinary Buy to let products would fail this type of purchase in a key area; rent. Buy to let lending criteria, states that the mortgage loan must be supported by rental coverage, say 125% of the interest only monthly cost.

The lenders surveyor, will state that due to condition, the property will not attract a tenant, therefore no rent, and the application will fail.

These special products are “one off” Buy to Let products, that do not use rental to support the loan, they use self certified personal income from all sources.

Perfect!

What more, whatever your exit strategy they work. If you want to take your profit and run, you can.
If you want to do the property up, and retain as a rental you can. The products are “portable”, which means that you can take them with you to your next project, simultaneously replacing them with a now rental based buy to let product on the re-furbed property.

Let Property Strategies are buy to let mortgage brokers - http://www.letpropertystrategies.co.uk/

Below market value property purchase

Not so long ago there were herds of almost “zombie” like property investors, buying new build properties on the inside track style scenario believing that a property could be sourced at 15% - 20% “ BMV”.

Come on get real! Do these vendors also stand on the street giving away fivers?

So is there a future for below market value properties? The answer is a resounding, yes.

In these credit crunch times, there are lots of “distressed “sales coming onto the market, some due to the panic caused by the media. For instance, would it be better to sell up now 10% under value, lock in you’re your gains now, and, if you believe what you are told, wait a year or so and buy at rock bottom? I don’t know, but you get the idea.

Problems come with financing these. The lenders that have caught a cold won’t mention any names here, specialising in financing, so called “under value” new build flats, are either closed to new business or won’t look at any under value element as a deposit contribution.

Solution: Bridging finance.

A bridging loan can provide 100% of the purchase price, providing that this is not more than 85% of the open market value (OMV), if there is a simultaneous, same day residential re-mortgage in place. This gets around the residential lenders rules and fears surrounding under value purchase.

An example would be the purchase of a repossession property say 15% under value. The high street route, would work on the purchase price, and not the value and this would be classed as 100% lending. At present, these loans are not available.

Using one of the above examples, you would complete at 100% on the purchase price and simultaneously complete a re-mortgage at 85% of the open market value.

Bridging finance isn’t cheap; but the gain, in certain circumstances far out weigh the cost.

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