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Using your house to get into commercial property

  • NZHL
  • 23rd of March 2015

A scenario I myself am currently investigating, and one I recently spoke to a client about, is acquiring a commercial property. In both scenarios it is moving from leasing an office to owning a building. For a business the benefit of leasing is it is not requiring any capital.
You pay your monthly rent and that is it. However, after a while your rent payments can be equivalent to the loan repayments on owning a property and so do you choose to continue paying rent or do you now look to pay off a commercial property?

One of the issues of owning a commercial property is the deposit required. Depending on the property you could be looking at a deposit of 20-40%. For a commercial property of $500,000 that is $100,000-$200,000. If this money is not readily available then an option could be to use the equity in your house for the deposit.

An example of this is someone with a house worth $450,000 – they have an existing home loan of $200,000 and are looking at purchasing a commercial property for $500,000. They have managed to get commercial lending for $350,000 so require $150,000.

As long as income supports the borrowing this $150,000 could be obtained from the house, a new loan taken out for $150,000. This could be setup so the house is not used as security for the commercial property, so that in the event of not being able to meet the loan requirements for the commercial property your house may not be at risk (but you will still have the extra $150,000 loan).

A further advantage of this method is your residential interest rates will usually be less then commercial rates so the repayments on the $150,000 will be at a lower rate than on the $350,000.

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  • NZHL Author