Commercial Property Refinance Airlie Beach Queensland

Commercial Property Refinance Airlie Beach Queensland

Case Study: Restructuring Commercial Property Finance to Improve Borrowing Capacity for Self-Employed Business Owners in Airlie Beach.

Mortar Finance recently assisted established business owners in Airlie Beach, Queensland to restructure approximately $420,000 in commercial property debt before proceeding with the purchase of a $1.4 million residential investment property.

The clients already held their principal residence, commercial property and facilities associated with their business. Their objective was to expand their residential investment portfolio without unnecessarily refinancing their existing home loan or closing valuable business facilities.

The solution required more than simply finding a lender for the new investment property.

By first restructuring the commercial property debt using a lease-doc commercial lending strategy, Mortar Finance was able to appropriately separate the commercial property lending from the clients’ broader personal lending position.

We could then assess the residential investment purchase across lenders whose policies were better suited to the clients’ combination of self-employed income, PAYG earnings and company liabilities.

The result was a $420,000 commercial property refinance, followed by $1.12 million in new residential investment lending to complete the $1.4 million purchase.

The Client Scenario

The clients were established business owners in Airlie Beach looking to purchase a $1.4 million residential investment property as part of their longer-term wealth creation strategy.

Their financial position was more complex than a standard residential investment application.

They already held their principal residence, a commercial property and facilities associated with the operation of their business. Their income was also derived from a combination of self-employed/director income and PAYG employment income.

Importantly, the clients did not want to achieve the new purchase by unnecessarily disrupting lending arrangements that were already working for them.

Their objective was to complete the $1.4 million investment purchase while leaving their existing owner-occupied home loan unchanged and retaining the business facilities required for their ongoing operations.

Achieving this required us to look at the clients’ overall lending structure, rather than assessing the proposed residential investment loan in isolation.

The Challenge

The clients had approximately $420,000 in existing commercial property debt, which had implications for their overall borrowing capacity when assessed alongside the proposed residential investment lending.

Under a conventional servicing approach, the clients’ commercial debt, company liabilities, personal commitments and proposed residential lending could all influence the overall servicing assessment.

There were also material differences between lenders in how they assessed the clients’ income and liabilities.

One applicant’s PAYG income had recently increased. While some lenders would restrict their assessment to the lower historical financial-year earnings, others could recognise the higher current income evidenced by recent payslips.

Treatment of the clients’ company liabilities also varied between lenders.

The challenge was therefore not simply finding the lowest residential investment rate.

We first needed to determine whether the existing commercial property debt could be structured differently and then identify a residential lender whose credit policy appropriately recognised the clients’ current income and liability position.

Mortar Finance’s Strategy

Stage 1 – Commercial Property Refinance

Mortar Finance reviewed the clients’ existing commercial property and identified an opportunity to refinance approximately $420,000 using a lease-doc commercial lending structure.

The commercial property generated approximately $45,000 per annum in base rental income, plus outgoings.

Rather than relying solely on a conventional global servicing assessment incorporating the clients’ broader personal and business position, the proposed lease-doc structure allowed the lender to place greater emphasis on the rental income generated by the commercial property itself.

The refinance was structured at approximately 65% loan-to-value ratio (LVR).

At the proposed lending terms, the commercial property produced an Interest Cover Ratio (ICR) of approximately 1.52x, satisfying the lender’s minimum requirement of 1.50x.

This provided an appropriate pathway to refinance the approximately $420,000 commercial property debt using a lending methodology suited to the income-producing asset.

With the commercial property position addressed, we could then move to the second stage of the strategy.

Stage 2 – Residential Investment Purchase

Mortar Finance then modelled the proposed $1.4 million residential investment purchase across multiple residential lenders.

Lender selection was particularly important because policies varied considerably in their treatment of self-employed income, current PAYG earnings and company liabilities.

The selected lender was able to recognise one applicant’s higher current PAYG earnings using recent payslips, rather than limiting the servicing assessment to the lower historical financial-year income.

The lender also provided more suitable treatment of the relevant company liabilities.

Together with the commercial refinance strategy, this enabled the clients to secure the required $1.12 million residential investment loan to complete their $1.4 million property purchase.

Importantly, their existing owner-occupied home loan remained unchanged.

The clients were also able to retain an existing business credit facility that another lender would have required them to close as part of the residential application.

The Outcome

The strategy resulted in two separate lending transactions working together towards one broader objective.

The clients achieved:

• $420,000 commercial property refinance using a lease-doc lending structure
• Commercial lending structured at approximately 65% LVR
• Commercial property ICR of approximately 1.52x
• $1.4 million residential investment property purchase
• $1.12 million new residential investment loan
• Existing owner-occupied home lending remained unchanged
• Existing business credit facility retained
• Commercial and residential lending assessed using methodologies appropriate to each respective asset and purpose

Most importantly, the clients were able to progress with their investment strategy without unnecessarily restructuring their home lending or sacrificing business facilities they wanted to retain.

Why Lending Structure Matters

For self-employed business owners, borrowing capacity is not always determined simply by how much income they or their business generate.

The way existing debt is structured, how individual lenders treat company liabilities, the income used for servicing and the lending methodology applied to different assets can all influence the outcome.

In this case, looking only at the proposed residential investment purchase would have missed an important part of the solution.

By reviewing the clients’ commercial property position first, Mortar Finance was able to establish a lending structure suited to the income-producing commercial asset before separately assessing the residential investment purchase.

The result demonstrates why commercial and residential lending strategies sometimes need to work together, particularly for self-employed clients with more complex income, asset and liability structures.

If you are a business owner in Airlie Beach, the Whitsundays or broader Queensland looking to purchase an investment property, refinance commercial property or review how your existing business and personal lending is structured, Mortar Finance can assess the broader position and help determine an appropriate funding strategy.

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Project Details

• Location – Airlie Beach, Queensland
• Client – Self Employed Business Owner
• Type of Loan – Commercial property refinance + Residential investment purchase
• Commercial Refinance: Approximately $420,000
• Commercial Structure: Lease-doc at approximately 65% LVR
• Residential Purchase: $1.4 million
• New Residential Lending: $1.12 million
• Task: Restructure existing commercial property debt before proceeding with a residential investment purchase
• Result: Investment purchase completed while existing owner-occupied lending and business credit facilities were retained

 

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