Case Study – Commercial Office Purchase Made Easy
Commercial Office Purchase – Finance Made Easy
Background
James and Brian were referred to First Point Group by a friend. They run an office based business, and wanted to purchase the premises they were currently leasing. The office was in a high quality eastern suburbs of Melbourne location. The purchase would enable them to own the premises and effectively pay rent to themselves.
First Point Group takes pride in being able to offer our clients solutions for all their finance needs, no matter how simple or complex.
The clients had considered multiple options with assistance from their Accountants and Financial Advisers, including the potential to purchase the office as a superannuation investment. Their advisers recommended that they purchase outside of superannuation via a Unit Trust structure.
The Challenges
James and Brian had an existing Business Bank ‘relationship’, however they felt that their Banker did not understand their business. Their Banker had also changed several times over the past 5 years. James and Brian were interested to know what finance options were available from a range of competitive commercial lenders.
Due to other commitments, the clients required a higher than usual Loan to Value Ratio (LVR) of 75%. Many mainstream commercial property lenders / banks prefer 60-65% LVR, which forces the business / investors to contribute a lot more capital upfront.
The Solution
First Point Group was able to arrange a Commercial loan pre-approval to enable James and Brian to negotiate on the purchase price, rather than negotiate without finance approval. This pre approval was incredibly valuable as James and Brian were able to enter negotiations with complete confidence. We also secured a loan at 75% LVR with a very competitive interest rate and fee structure.
James and Brian intend to also try and secure the adjoining office space over time. First Point Group are assisting them to understand their potential borrowing capacity.
If you would like to talk to the team regarding your next purchase, review or refinance whether you are seeking residential, commercial or asset finance, please contact us to find out how we can help you.
Interest Rate Update – October 2016
No change
The Reserve Bank of Australia (RBA) has just announced it will maintain the official cash rate at 1.50%.
The price of oil rose to almost $US50 a barrel last week, following a decision by the Organisation of the Petroleum Countries (OPEC) to cut production for the first time in eight years.
This, together with some recent solid economic results, has influenced the RBA to hold off any changes to the cash rate in the short term.
The next key financial data will be the release of the quarterly inflation figures on 26th October – a very good guide for the RBA to use to decide if to further reduce the cash rate in November.
For more information, or if you would like a free review of your residential, commercial or SMSF loans against other competitive products in the market please contact Peter, David or Simon via this email, our phone: (03) 9882 2500, or visit https://www.firstpointgroup.com.au
A Successful & Complex Refinance
Background
First Point Group takes pride in being able to offer our clients solutions for all their finance needs, no matter how simple or complex. We love a good challenge and this article shows how we overcame exactly that for one of our many valued customers!
Recently, First Point Group was faced with a complex refinance application for a client with multiple loans; both investment and owner occupied, as well as an application for additional finance at the same time. The client’s ultimate plan was to borrow to demolish their property and build their dream family home.
The Challenges
Borrowing Power – Our first hurdle was our clients’ existing lender would not lend sufficient funds to finance the construction. As we do for all of our clients, we then widened our focus to include a range of competitive Lenders who could potentially provide more flexibility.
Best Interest Rate – In order to achieve the best possible interest rate, it was beneficial to have all of the clients’ loans with the same lender, including the existing loans as well as the construction loan. In a way this is like “buying anything in bulk” – you would expect a better discount.
Refinancing Costs – Importantly, we found that several of the existing loans were locked into fixed interest rate contracts, so there were going to be significant “break costs” if we chose to refinance these loans. In order to go through the cost of refinancing to another lender, it had to be worth it. The interest savings would need to repay these costs within a relatively short period (ie. 12-18 months).
To meet the needs of the client, and overcome all of the above mentioned issue, we had to:
- Research for a suitable lender based on product features, Lender policy and serviceability limitations
- Calculate the refinance savings achievable by switching to each potential lender
- Calculate how long it would take for our client to recover the “break costs” if they were to break their fixed interest rate contracts. Depending on the size of the loan, and length of time remaining for a loan with a fixed rate of interest, the costs of breaking the contract can be tens of thousands of dollars!
The Solution
We were successful in working with the client and negotiating with the right Lenders to enable a complete refinance of all loans, which provided the capacity to fund the construction, and also recover the break costs within a 12-18-month period. The client was moved to loans with far superior interest rates, and the construction of their home is currently underway!
This is one of the many loans First Point Group have had approved where persistence is the key to achieving that final approval. Our highly experienced team will always anticipate (where possible) and overcome any challenges to meet the needs of our clients.
If you would like to talk to the team regarding your next purchase, review or refinance whether you are seeking residential, commercial or asset finance, please contact us to find out how we can help you.
Case Study: Selling a property with a fixed rate loan
First Point Group always work to find the best possible outcome for our clients. In this case study, Kate had a $300,000 fixed rate home loan, and a $400,000 variable home loan ($700,000 total).
Kate sold her home, but had not yet found a new property to buy. She was happy to rent for a little while, and the sale amount was sufficient to repay all debts.
In most cases, a variable rate loan can be repaid without any significant fees or penalties. The key issue for Kate is that repaying / closing a fixed rate loan can be extremely expensive due to Lender “break costs”.
The break cost associated with a fixed rate loan is essentially the Lender’s way of passing their “future losses” onto you if you break the fixed rate contract early.
In this case study, Kate’s fixed rate still had 2 years left to run, and since interest rates had fallen since the loan was taken out, the Lender was set to effectively lose X% interest for those remaining 2 years. That cost would normally be passed onto the Borrower if/when the loan is paid out. In this case the amount was just over $8,000.
Therefore it was imperative that we find a way to enable Kate to sell the property BUT keep the fixed rate loan open, to avoid that break cost.
Despite Kate’s lender not being a regular “big 4 bank” or even a deposit taking bank, First Point Group were able to negotiate for Kate to offer $300,000 of the “cash” from the property sale to secure the fixed loan for a short period of time until her next property purchase occurs.
As a result, the fixed rate loan remains open, and Kate did not have to pay the $8,000 break fee.
When Kate purchases her new property, the $300,000 cash will be released and put towards the purchase. At the same time, the new property will become the security against the $300,000 fixed rate loan.