Are you ready to take advantage of buying opportunities when they arise, or do you need to re-capitalise your business to make more diversified investments? Swindon's finance expert, Peter Landwehr, shares his tips for investors.
There are many good reasons to refinance a commercial property portfolio or part thereof, says Peter Landwehr, Commercial Property Finance Procurement Specialist at Swindon Property.
"Accessing the equity in your commercial property can enable your business to leverage valuable opportunities for growth," says Landwehr. "Refinancing your commercial real estate can be a very useful financial tool for your business."
One of the most popular reasons to refinance is the cash-on-hand appeal, says Landwehr. "Not only is this money considered tax-free, but it can be used for any purpose, and the interest can be deducted as an expense."
This means that refinancing provides a feasible alternative for owners who may otherwise be considering selling the property: instead, owners can tap into the equity in their property to secure cash on hand when needed.
Portfolio improvements and expansion
Not all owners are looking to access ready cash but may still require financing to improve their overall property portfolio. Accessing the equity in their commercial properties could be the key to greater returns over time.
"An investor with surplus value in their property may not have additional funds to make necessary or desired property improvements. However, through refinancing, they could make significant improvements to the property that will help them to achieve higher rental incomes," explains Landwehr.
A better rental income will improve the property's cash flow and ultimately the net rental income (NRI). "If a decision is made at a later stage to refinance again, having a good NRI will enable the owner to negotiate better loan terms."
Another common reason for refinancing is portfolio growth - referred to as 'leverage'. "Some investors use refinancing as a mechanism for growing their real estate portfolios," says Landwehr. "This is how many investors have amassed fortunes through real estate."
Loan terms and tax incentives
The terms of a loan can make a massive difference to a business's bottom line, so even a slight adjustment in the right direction can offer great benefits.
"As an investor's position becomes stronger over time they present less risk to their lender. As a result, lenders may consider more favourable loan terms," says Landwehr. This could translate into better interest rates, extended loan periods, and/or higher loan-to-value ratios.
A property owner with a variable rate loan may also consider refinancing to a fixed-rate loan, which could provide more predictability in the long term. Additionally, consolidation of a number of loans with varying terms and repayment periods into one can simplify and streamline management considerably.
Last and by no means least is the potential tax benefit of refinancing. The South African Revenue Service (SARS) allows for interest on property loans to be deducted as an expense. As loans are paid off, interest decreases and eventually falls away. The result is less (or no) interest can be written off as an expense, and increased profits will, therefore, be taxed. An accountant would be able to review an investor's specific circumstances and advise on how best to use refinancing to minimise tax expenses.
Let our expert team help you leverage your property equity
If you're considering refinancing your commercial property, Peter Landwehr at Swindon Property can help. With over 30 years' experience in commercial property finance, holding senior positions in FNB Commercial Property finance, ABSA Commercial Property Finance and at Fidelity Bank - Peter has the knowledge and expertise to advise you on the best way to leverage your asset portfolio.
For assistance, please contact:
Peter Landwehr | Commercial Property Finance
T: +27 (79) 526 4173 | peterl@swindon.co.za