We offer help obtaining Richmond retail and office mortgages (near Vancouver, B.C.). We also help business owners obtain these mortgages throughout B.C. and Western Canada.
If you own a business and plan to literally, “open up shop,” you can do it in one of two ways:
- You can lease your space.
- You can buy your space.
Leasing, while great for getting off the ground, is sometimes too restrictive for a business, or too financially straining.
Buying your retail or office space can bring long-term financial advantages, if you’re ready to take the leap into commercial property ownership with your business. This type of purchase can also give your company more flexibility when it comes to property improvements that you need to undertake for continued growth.
If you choose to buy, you’ll need a retail or office mortgage that won’t create as many restrictions as leasing. That’s where a commercial mortgage broker becomes very useful.
A commercial mortgage broker can work in tandem with your real estate agent and lawyer, so that your property purchase goes as smoothly as possible. The advantage to working with one of our Vancouver or Richmond commercial mortgage brokers is that they can:
- Help you find a retail or office mortgage that suits your particular case, for the site you want to buy. These are not easily findable in the public realm.
- Use your provided documentation to build a case for your loan eligibility.
- Advise you on the financial aspects of what you can afford, or lenders you may qualify with, especially if you’re on a strict timeline.
If you’re in the process of seeking a retail or office space to buy, we encourage you to be in touch with us. Our team of B.C. commercial mortgage brokers has helped several entrepreneurs in the realm of business property acquisition. We’re also able to access several loan offers from a variety of lenders, to ensure you get the best deal for your situation.
Contact us today, and we’ll help you get this process started!
Or, keep reading to learn more about mortgages for retail and office space in the Richmond or Vancouver area. As mentioned above, we also help business owners obtain mortgages for the rest of B.C. and Western Canada.
How are retail and office mortgages different from other types of commercial mortgages?
A commercial retail or office mortgage offers financing to purchase storefront or workplace properties. These are properties where end-customers are typically serviced. For example, they can be:
- Storefront units with street or indoor entry points
- Restaurants and cafes
- Salons and spas
- Gyms, yoga studios and physiotherapy clinics
- Daycares and preschools
- Private educational institutions
- Dog grooming facilities
- Chiropractor’s, massage therapist’s or dentist’s offices
- Post offices
- Car washes and detailing centres
- Mechanic’s garages and autobody shops
- Car sales lots
- Theatres and entertainment spaces
- Gas stations
- Nursing homes
- Offices in commercial buildings
And so on.Read more
In general, regular, commercial transactions take place in these properties. They are often near public spaces and shopping districts, but they don’t have to be.
Moreover, they can come part-in-parcel with equipment needed to run a business. And, they each have their very particular ways of earning revenue, based on the product or service they provide. However, they don’t cross into the realm of manufacturing or warehousing.
All of the above factors can play a role in profitability. Because of this, a lender will take these details into account when granting a retail or office mortgage.
How much of a down payment will I need to purchase a retail or office space in Richmond, or the rest of B.C.?
In general, B.C. commercial properties require a higher down payment than residential properties.
Acquiring a B.C. mortgage for a retail or commercial space can mean coming up with at least 20% of the property price as a down payment.
This translates to an 80% Loan-to-Value (LTV) ratio.Read more
However, don’t get your heart set on this rate. LTV ratios for these properties can be lower, requiring a 50% down payment, or more. The determining factors of the LTV you get can vary depending on:
- The business’s credit history.
- Your personal credit history.
- The business’s projected profitability and stability.
- The location of the retail or office space.
- The quality and current condition of the retail or office space.
- The lender’s current offerings.
Commercial properties are a lot riskier for lenders, so they naturally come with more rules and restrictions. In addition, some of these ‘rules’ require several steps before applying. These steps have added costs to them. We’ll explain them below.
Click an item below to expand and read more:
You’ll need more than a down payment for a retail or office property mortgage
You should know that, with B.C. commercial properties, the amount you pay and the amount that is used for financing will be different.
The lender will give you a mortgage based on the appraised, current value of the property. But the seller of the property will base their price on the potential of future profit. Because of this, the property price you pay will be higher than its current value.
So, in essence, you’ll need to use cash to make up for the difference in appraised value, versus the selling price. This will be on top of your down payment requirement.
Plus, there are added costs to purchasing a retail or office space
When you purchase commercial property of any type, there will be added costs that you’ll need cash for. These include:
- Closing costs, lawyer fees, taxes and so on (as with all real estate).
- Fees to produce necessary reports such as a building condition assessment (BCA), an environmental risk assessment (ERA), an appraisal and other due diligence reports (e.g. liens or taxes owing on the property). See note below.
- Mortgage transfer fees, if you have bought bare land to construct a retail or office building. When construction begins, you’ll need a new type of mortgage.
Note: if you are buying a unit within a strip mall or office building, the property management company or commercial strata management company will typically have the building condition and environmental reports you need to apply for a mortgage. Work with your real estate agent to obtain these for your commercial retail or office mortgage application.
Many entrepreneurs who seek to purchase retail or office space also consult with specialists, such as corporate lawyers, accountants and business advisors. These professionals will have their own fees, in addition to the ones listed above.
In some cases, professionals are legally necessary for the property transaction. However, even if they’re not required, lenders will take you more seriously if you have consulted with them. Plus, they can save you from a lot of adversity, and are thus worth the investment!
Loan values must be profitable to the lender
Keep in mind that, in order for a B.C. commercial loan to be worth it for the lender, the loan’s dollar value should generally be higher than $250K CAD. This means that you won’t be able to put up more of a down payment to lower your fees, if it also lowers the interest that a lender can profit from the loan.
Insured mortgages are not always available on commercial property purchases
With some real estate, insured mortgages can mean lower interest rates compared to conventional mortgages. This is due to the lower risk they offer lenders (learn more, here). However, commercial mortgages are not always insurable.
The cases where you could apply for insurance on a Richmond retail commercial mortgage are when buying:
- Licensed care facilities (i.e. long-term nursing homes)
- Retirement homes
Insured commercial mortgages are also available for multi-unit residential properties that are bought for earning rental income. You can read more about them, here.
How can I get the best terms and rates on a B.C. retail or office space mortgage?
Since these types of mortgages are so case-specific, and are not openly advertised, the best thing you can do in this regard, is to work with a good, Richmond (Vancouver) commercial mortgage broker. They will have access to information that will be extremely difficult to find otherwise. This includes competitive rates and terms for retail or office space purchases in Richmond, Vancouver or the rest of B.C.
Below, we’ll explain a few general pointers on how rates and terms are determined for a retail or office mortgage in B.C.Read more
If you’re buying a business with your property, that can change your mortgage application requirements
When you apply for an office or retail commercial mortgage in B.C., you’ll be in one of two circumstances:
1) Buying a commercial space with a business ‘attached’ to it
In this scenario, the equipment and furniture in the space is already being used to operate a business. You’re taking it over, along with the other tangible and intangible aspects of the business (such as its brand recognition, its trademarks and patents, documented operations processes, clientele lists, etc.)
For a good mortgage lender to accept your financing application, they will need to see the previous two years of business financials from the existing business owner. Then, they will determine whether or not it is profitable by calculating what’s called a “capitalization rate.”
A capitalization rate is typically formulated by taking the net operating income (NOI) and dividing it by the current market rate of the property (i.e. its current asset value).
Note: it is rare to use the purchase price as the dividing factor in capitalization rate. This is because it is not entirely reflective of the return on investment that lenders can earn on the mortgage.
An ideal capitalization rate for lenders is between 4% to 12%. However, it depends on the area, the type of business, and the type of property in question.
For example, improvements on the property, or changes in the business structure can also affect future profit. This may also be taken into account in your mortgage application. But again, it depends on the lender’s criteria.
2) You’re buying an empty commercial unit with plans to build a business within it, from scratch
In this scenario, the mortgage is considered based on the unit value itself and your own potential to build a profitable business. This changes the game a little bit.
Since there are no existing financials to back your case on, you’ll need to provide a business plan to show that you have your ‘ducks in a row’ (so to speak). The lender will compare your business approach with others in your area and industry, to determine if you are being reasonable.
This is where it can be extremely important to consult with a business advisor or accountant. They can help you thoroughly consider the financial aspects of your business, to better predict profitability. They can also make a ‘proper’ business plan, which will ‘speak’ to a lender with more professionalism.
Other factors a lender will consider will be about you, personally. They will want to know if you have industry experience and can succeed in your new business venture. They will check your credit history, your personal assets and other sources of income.
Ultimately, the lender will want to know that you can make mortgage repayments, in the event that the business struggles.
Regardless of the situation you’re in above, the following principles will usually always apply to the terms and rates you can get for a commercial mortgage (click each item to read more).
Business location and property marketability can yield better commercial mortgages
If you are planning to purchase a retail or office property in a busy, commercial area with plenty of foot-traffic, this can work in your favour when applying for a mortgage. If the property is already in good condition, that will be even better.
Lenders may be willing to offer a higher loan amount in these cases. This is because the property will be easy to resell, should you default on loan repayments.
In essence, the lender will account for security in knowing that they can dispose of the property to get their money back, should things go southward.
Renovations and equipment purchases can sometimes be financed with a Richmond retail or office mortgage
Whether you decide to buy an existing business or start one from scratch, no doubt you may encounter costs for renovations and equipment.
In some cases, a lender will allow you to ‘fold in’ the financing of these needs with your mortgage. For example, they may offer an additional loan to help a dentist buy dentist’s chairs. Or, they may help a salon renovate, to attract more customers.
In these scenarios, the borrower would pay back the loan with the same repayment schedule as the mortgage on the property.
If you need the cash flow to be able to afford these upfront costs, then the best commercial mortgage for you will be one that can offer this deal.
Timelines matter when it comes to retail and office mortgages
Depending on your timeline, a commercial mortgage broker may advise opting for a flexible mortgage, rather than a low-rate mortgage.
This is because low-rate mortgages with ‘A’ lenders may not be able to come through as fast as ‘B’ lenders or ‘C’ lenders. If you’re in a race to win a bid on a property, you’ll want a lender that can get you cash quickly. Afterwards, switching to a different type of lender, with lower rates, may be possible.
Terms and amortization periods can affect your end purchase costs
With commercial retail and office mortgages, there will be terms and amortization periods, just like with residential real estate. These generally follow the principles of all commercial mortgages.
The terms can go up to 5 years, after which point you will need to renew or transfer your mortgage. These intervals are a good time to be in touch with your commercial mortgage broker, so they can get you better deals, if possible. This can save you thousands over the span of your repayment schedule.
Amortization periods can go up to 15 or 20 years. This means you’ll have to pay off the entire loan within that time period.
Let’s say you get a 3-year term with a 15-year amortization on your Richmond retail or office mortgage.
After 3 years, you will need to renew at current market rates. This can be higher or lower than the rates you currently pay.
Let’s say you renew for another 3 years. At your date of renewal, you will have 12 years left on your amortization period. You’ll continue to pay back the loan with interest, but at the new rate you received on renewal.
This process will repeat every 3 to 5 years (depending on the renewal terms you choose over the life of the loan).
On that note, we also help with renewals on existing commercial mortgages, even if your original mortgage deal was not through us. Feel free to be in touch, and we’ll shop the market to get you a deal that matches your needs.
Ready to ‘open up shop’ with your very own retail or office space? Contact us for Richmond retail and office mortgages (in Vancouver)
If the details above seemed like a lot to absorb, we understand. Navigating mortgages – especially commercial ones – can be difficult. Moreover, even if you tried to research the subject, it would be hard to find in-depth information.
Thankfully, as Richmond and Vancouver commercial mortgage brokers, that’s what we’re here for! We can guide you through the steps of being qualified for a loan to buy your next retail or office space.
Get in touch with us, and we’ll direct you to the right place, depending on where you’re at in the buying process!