Commercial Investment Mortgage

Obtaining a residential or commercial investment mortgage - The deal.

Many people have become property investors in New Zealand in the past few years. Whether you'll need a commercial investment mortgage or a residential mortgage, the deal you have negotiated will have a big impact on firstly, your chances of getting it financed; and secondly on how good the terms and conditions are for you. It is a key skill in successful property investing.

So, here are some key points that should help you negotiate the sort of deal that helps rather than hinders when you go for finance.

Don't forget the finance clause

Unless you really are in a position to settle for cash, make sure you include a finance clause. This may seem painfully obvious to some of you, but, believe me, it happens, sometimes people don’t include a finance clause and put themselves under all sorts of pressure, and expose themselves to being sued.

The finance clause gives you an ‘out’ from the sale and purchase agreement if you are unable to raise finance by a certain date. It also allows the vendor to pull out of the deal at that time, if they wish, if you don’t confirm that you have secured finance.

If you really can settle for cash, then not having a finance clause can be an excellent bargaining chip, but if you can’t, it’s essential to have this clause in there. Apart from the financial and legal risks involved, it isn’t a good look if you are saying to the bank manager or the broker that you really must get this finance approved because there is no finance clause. They’ll wonder if you’re a suitable person to be given large amounts of money!

Good real estate agents should be able to help you construct a suitable finance clause. If you’re really concerned about it, get your lawyer involved. Make sure you have enough time to organise the finance, but also make sure there is enough time to settle afterwards. Also, you don't want such a long time that it's off-putting to the vendor.

Make the deal fit your needs and limits

Especially true if you are trying to push the envelope of your current circumstances. If you know that you don’t have enough available equity to support the deal, you’ll need to create some. This could be vendor finance of some kind such as delayed payments or a loan from the vendor. Another option might be a delayed settlement date, this could suit if you think you will have some equity or cash available at some point in the future.

You can also maximise the potential profits of a deal through these methods, even if you don’t need to do it because of straightened circumstances. For example, if you know that a property is under-valued and are confident of unlocking the value, let’s say in 9 months time, then if you can get delayed payments for 9 months after you take possession you’ll be gaining the benefits of the unlocked value as soon as, or even before you’ve fully paid for the property.

Conditions

Again, these should suit your circumstances. You can use these to protect yourself in case you can’t settle, such as conditional on a particular property selling. Or, you can use them to protect yourself in case you want to change your mind, such as by doing due diligence and finding out what the rent would be.

Whilst you don’t want to have too many onerous conditions that will put off the vendor, it’s a good idea to use them to make sure that you will be able to not only get finance but also live with the finance you get. Return to Home Page Return to How to Finance Property Investment