Buying a commercial property at auction can be an excellent opportunity, but it requires careful planning, especially regarding financing.
Buying at auction differs from the usual property purchase process, making financing your purchase tricky. First, you don’t know exactly how much you’ll be paying for the property, so arranging finance for the right amount in advance is difficult. Second, you’ll have a tight timeframe to pay for the property, usually a maximum of 30 days, meaning you won’t have long to put your payment together.
Consequently, it’s wise to understand your financing options and arrange your funding in advance. The three most common ways to finance a commercial auction property purchase include:
Cash reserves
If you have the reserves available, using cash to buy a commercial property at auction is the most straightforward way to pay for your new asset. You’ll be able to proceed straight away without waiting for a successful finance application. Also, you won’t incur any interest charges if you’re not taking on debt for your purchase.
Commercial mortgage
You can use a commercial mortgage to buy a property at auction. However, commercial mortgages are subject to stricter lending criteria and higher costs than residential deals. They can also take longer to process, which can be a concern when buying at auction. Securing loan pre-approval before the auction day can help speed up the process.
Bridging finance
Bridging finance is a short-term loan that is popular for auction purchases. Because bridging finance is generally fast to obtain, it is often used to buy commercial property at auction.
Securing a bridging loan will enable you to complete on your auction purchase and provide breathing space to find a longer-term, and often cheaper, finance solution.
Tips on buying a commercial property auction at auction
Buying at auction is not without pitfalls, so bear these three essential tips in mind:
- Instruct your solicitor to review the legal pack and contracts of sale.
- Arrange your financing in advance and obtain loan pre-approval.
- Decide on your maximum bid and stick to it! If your arm is raised when the hammer comes down, it’s too late to change your mind.
If you plan to buy a commercial property at auction and need finance, speaking to a finance broker beforehand is essential. Your broker will be able to help secure loan pre-approval and get everything prepped to speed up your application post-auction. When you’ve got a tight timeframe and many things to organise, having someone who can speak to the right people and arrange your finance can be a life-saver.
If you’d like help securing finance for a commercial property auction purchase, please get in touch.
