There are various types of property finance for each investment property available. This specialised area shows us that different lenders make use of these types depending on the situation and geographical location.
If you plan to purchase a building for your company to finance, it is a good idea to ask for help from experienced lenders. But if you wish to buy a building for the purpose of earning income by allowing other businesses to rent a space, the options for lenders will be limited.
This is because the income that will or will not be collected from tenants are considered high risk. The lender may be worried that you will not be able to pay back the loan unless you have another source of income.
Collateral and Deposits
South Africa is familiar with this type of property finance. They can use a structure as the collateral, assuring the lender that there is something valuable in exchange for the money they will lend.
Because the title deeds will be under the lender’s name, he or she basically owns the facility until the loan has been paid back. The lender now has the power to sell the building if in case the borrower will declare a default on the payment.
The borrower may have to battle to secure proper financing for this kind of property unless he or she has a signed letter of intent to inhabit some space from blue-chip clients.
The loan will be influenced by the type of building
It is tougher to sell an investment property which can be used for only one thing, such as a gym, hostel or movie theatre. The property must be customised to be compatible with the business needs, making it a challenge to sell.
Therefore, if the property only serves one purpose and is difficult to sell, the potential lender might not want to place a loan since he or she might not be ready to accept the facility as collateral for the loan. In most cases, the borrower would need to deposit a higher amount.
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