Buying a commercial property in Cape Town or anywhere else in the world is a substantial financial commitment, and the tricky process involved in getting financing when compared to a residential property can seem daunting to some.
Fortunately, there are a number of different ways to finance your commercial property investment. In this article, we’ll introduce you to a financing method called gearing and give you a quick overview of its benefits.
Gearing – one of the best ways to access capital
One of the biggest challenges that property investors face is securing the cash required to finalise their purchase.
Gearing allows property buyers to finance part of the purchase price through a long-term loan. It’s quite similar to a home loan, but there are a few key differences that you’ll need to be aware of before you proceed.
- The time involved in applying for a loan of this type is greater than a regular loan application – you may have to wait a month or more for approval.
- You can expect to pay between 1% and 1.5% (excluding VAT) of the loan value in finance charges.
- The loan’s interest rate is likely to be higher than the prime rate – typically prime +1 or higher.
- It’s uncommon for gearing loans to cover 100% or even 75% of the property’s value.
- For this reason, you’ll need to have a minimum 40%-50% deposit available in cash.
The benefits of gearing
The application process when using gearing can be a little more complicated than a traditional loan, but there are plenty of benefits too.
Gearing allows you to access the capital you need to make property investments at favourable prices, especially during sluggish years or when there’s a buyer’s market. This will allow you to take a value investing approach and enjoy excellent returns when the market rebounds.
You can also opt to spread your risk by buying several commercial properties or premises instead of investing your cash in one property.
Finally, from a tax point of view, the interest payments you make on your loan are tax-deductible expenses.
We’ll help you select the ideal property investment
By choosing the right property and financing your purchase successfully, you could be well on your way to making a healthy ROI.
The Commercial Space team has decades of collective experience in securing commercial properties for investors at competitive prices that maximise value. Contact us today, and we’ll set up a meeting to discuss your investment strategy and property requirements.