How much can I borrow?
With a strong potential to return a stable income thanks to long lease terms, warehouses are a popular choice for investors wanting to take the leap into commercial real estate.
Getting approved for a warehouse loan really comes down to the nature and location of the building.
- Warehouse commercial property: Borrow up to 70% of the property value (freehold) or up to 100% with a guarantor or using a residential property as security.
- Commercial showroom: Borrow 70%-75% of the property value (freehold).
- Storage unit: Borrow 70%-75% of the property value (freehold). Leasehold considered on a case by case basis.
- Maximum loan term: 20 years.
- Maximum interest only term: 5 years.
- Loans over $5,000,000: Assessed on a case by case basis.
- A business plan is required if you’re planning on running a business in the warehouse.
- Interest only and principal & interest payments available.
- Low doc options are available.
- Interest rate discounts vary from lender to lender and the strength of your application.
We can give you an indicative funding approval!
Call us on 1300 889 743 or fill in our free assessment form to speak with one of our warehouse loan specialists.
How can we help?
Getting a lender to consider your warehouse loan application comes down to putting together a strong case with plenty of financial evidence that supports your strength as a borrower.
With the right lender, we may be able to negotiate a reduced interest rate with a loan amount up to your maximum Loan to Value Ratio (LVR) or borrowing power. With a high LVR, this leaves you with a bit of a cash flow buffer as you either set up your business in your warehouse or advertise for tenants.
Of course, getting approved with a decent sized warehouse loan at a competitive interest rate is just the first step. Having the right features to manage your loan over the long term is just as critical so have a look at the commercial loan features page to get a better picture about some of these commercial loan features.
What do the banks assess?
Unlike specialised properties like service stations and restaurants, warehouses are little bit more straightforward when it comes to getting approved because they’re considered standard commercial properties.
With longer leases, usually 3, 5 or even 10 years, commercial lenders will generally require you to have at least 1.1 to 1.4 times the amount of income to proposed interest expenses. This is known as the ‘serviceability ratio’.
You don’t necessarily need a clean credit history. If you can provide detailed explanations of how you resolved such credit issues as defaults, there are lenders who will consider your case and approve your warehouse loan.
If you’re simply purchasing the freehold (the property and land itself), then banks will simply want to see that you can afford to pay back the loan which means having a good asset position, stable income and/or a residential property to secure the debt.
For business owners looking to purchase a warehouse as a means of expanding their business, that is, moving your business into the warehouse, the bank will be looking at:
- Financial statements including Business Activity Statements (BAS), an Australian Taxation Office (ATO) tax portal printout or bank account statements for the last three to six months showing your turnover.
- A business plan that details cash flow forecasts, market competition and your business model.
Our brokers are specialists in warehouse loans and we can help you prepare your application to highlight your strengths as a borrower so you have a better chance of getting approved the first time around.
Does the location of the warehouse matter?
Location is important no matter whether you’re buying the property as an investment or using the premises to operate your business.
Banks will be looking at vacancy rates and other aspects of the warehouse market for the area that the premises are located.
Ideally, you’ll want to go for warehouses that are located near central business districts (CBDs) and have easy access to good infrastructure like main highways and motorways, both of which are essential for distribution businesses.
Location has a positive effect not only on the value of the property but the viability of the warehouse to attract tenants.
Ideally, the bank will want you to pay back your loan in full plus interest but if you’re unable to make your loan repayments, they’ll want to know that the property can be sold at a price at which they can get their money back.
Can direct competition stop you from getting a warehouse loan?
This is essential if you’re running a logistics business. If another logistics company is located closer to the retailers or businesses that you want to attract as clients, those businesses are likely to choose that warehouse to do business with because their proximity is beneficial.
Where direct competition can be a real problem is when it comes to retail, specifically, when businesses set up in a warehouse as a means of storage but also as a means of selling stock directly to customers.
Having direct competition can have a detrimental affect on your business but also on your ability to qualify for a warehouse loan.
The bank wants to see that you can stay profitable.
Call 1300 889 743 or complete our free assessment form today and we can help you to highlight the positives of your application.
How are warehouses valued?
Lenders will want to see the property, so they will send out a valuer who specialises in warehouses and other industrial property to inspect the premises.
They will be looking at structural elements like the roof and the plumbing, but they will also consider the building’s likelihood of attracting tenants.
To increase your chances of securing the warehouse loan, you should consider properties that have close transport links, specifically motorways and freeways.
Ideally, there should also be businesses around your desired property because they will support your future lessees. That means it’s often better to look at warehouses that are located near inner-city locations or CBDs as opposed to those located too far outside of the city that you’re trying to attract tenants.
Another thing to consider is whether the warehouse is mixed-use or a specialty property.
Mixed-use means that the warehouse can be used for commercial, industrial, or residential purposes, meaning that there’s a larger market of buyers.
Have a think about whether the premise is just open space. If so, it can be easily altered or renovated for any number of business or residential purposes.
Specialty properties refer to those designed for specific purposes, such as special loading docks for railways, airports, and seaports.
It can be harder to secure a lessee on a property that’s designed for a specific purpose, not to mention getting approved for a loan.
Luckily, we have a range of commercial lenders to choose from and have strong relationships to give you the best chance of getting your warehouse loan across the line.
How will my business be assessed?
Like a standard home loan to buy a residential property, commercial loan applications are judged on the strength of the borrower. That means the bank will be looking at things like your asset position and experience in running a business of a similar size.
If you want to run your business from the premises, the trick to getting approved for a warehouse loan is to present a strong case and mitigate any weaknesses in your commercial loan application. This is where a mortgage broker with experience in commercial loans comes in.
The commercial lending departments of banks will usually undertake what is known as a SWOT analysis, an acronym for Strengths, Weaknesses, Opportunities, and Threats.
Although it works differently from lender to lender, a SWOT analysis for a warehouse may look something like this:
Strengths: For example, you’re experienced in the business that you’re running, and the warehouse is close to good infrastructure and/or within a few kilometres of a CBD.
Weaknesses: This refers to the weak aspects of you as a borrower, such as having little to no experience in the industry or in running a warehouse.
Opportunities: The construction of new motorways can have a positive impact on distribution and the viability of your business, so this is something to consider when looking at warehouse listings.
Threats: This refers to external factors that are largely out of your control. This is not as much of an issue with warehouses as it is with other types of commercial properties.
We know how to present a good case to the banks!
Call 1300 889 743 or complete our free assessment form, and one of our commercial mortgage brokers can help you.
What security can I use for a warehouse loan?
Development
- Registered first mortgage over property being developed.
- General Security Agreement (GSA) of the developer’s/owner’s rights and undertakings in respect of all security property, including pre-sale deposits where appropriate.
- Directors’/shareholders’ guarantees.
- Rights to designs, intellectual property, and other aspects relevant to the development.
Investment
- Registered first mortgage/s over security property.
- GSA over all of the investor’s/owner’s rights and undertakings in respect of all security property.
- Directors’/shareholders’ guarantee.
If you’re confused about the requirements for a warehouse loan, please complete our free assessment form, and we’ll get back to you within 24 hours with answers to your questions.
Get proper financial advice
Buying a warehouse is a much larger investment than buying a residential property, so it’s essential to seek out proper financial and legal advice first before even applying for a warehouse loan.
Initial consultations are sometimes free for accountants, financial advisers, and lawyers, but even paying a few thousand dollars for these professionals can help you avoid common mistakes when owning and maintaining a commercial property.
In addition, you’ll be able to position your investment as part of your overall financial goals, meaning that you’re saving the maximum over the long term.
How will you own the warehouse?
An accountant can help you set up an entity structure that’s more profitable for your situation.
A trust or self-managed superannuation fund (SMSF) structure may suit your particular situation, but please speak to a financial adviser before making any decision.
How do you know that you’re getting a good deal?
A specialist solicitor can help you ensure the Contract of Sale is favorable.
For example, if you make an agreement with the vendor that certain warehouse machines or racks be fixed or replaced before you sign the contract (more applicable to specialty warehouses), you’ll want to make sure that there is a null-and-void arrangement in the Heads of Agreement just in case the vendor fails to undertake such work.
Similarly, a business broker can help you negotiate with a vendor on your behalf.
What do you have to look out for in the property?
Whether it’s your business or you’re simply applying for a commercial loan to buy the warehouse as an investment, consider:
Land area and car park: A considerable amount of land means more room for storage and the opportunity to add a car park or extend an existing lot, both of which can be attractive to potential tenants.
High clearance, clear-span: The so-called clear height is the distance between the floor in the warehouse and the ceiling before any obstruction gets in the way like a fan, hanging lights or girders.
Tenants need to know how much they have to work with for the purposes of storage and maneuvering forklifts and mini-cranes. In most cases, warehouses come with a clear height of 30 to 32 feet.
Getting copies of engineering certification: You should ask the vendor for this because they can tell you whether the warehouse is structurally sound including the load bearing capacity of the concrete slabs on the floor as well as the car park area.
This is essential when you take into account the type of material or stock that will be delivered, moved and dispatched over the land area of the warehouse.
Loading dock: Warehouses with loading docks are highly sought after because the business owner won’t be required to create a separate dock on the inside.
Office space: Having an office in the warehouse can be an attractive feature for tenants but, of course, it really depends on their business needs. Air conditioning is a plus as well.
Generally speaking, about 5-10% of the total square footage is ideal for a dedicated office room. Any more and the potential tenant may consider whether they’re in fact getting enough storage space to justify the amount they’ll be spending on rent.
Security: Features like mechanical operating doors, security fences, strong doors, surveillance cameras and alarm systems are highly sought after but, again, aren’t essential. Bear in mind too that there may be more upkeep involved with these types of warehouses so consider your business and security needs.
Should I just buy the freehold as an investment?
Although there is more potential return in running a business, there are still a number of benefits in buying the freehold as an investment.
Firstly, there’s a much more straightforward process in getting approved for a warehouse loan compared to running your business from the premises as well.
Do you qualify for a warehouse loan?
Fill in our free and easy assessment form and one of our experienced mortgage brokers will get back to you within 24 hours to discuss your situation and the type of warehouse that you’re considering purchasing.
As you do start to search for potential properties online, speak with a buyers agent or business broker.
They can help you find a warehouse that best suits what you’re trying to achieve in terms of return and/or stable income.
Like a normal residential real estate agent, they help you to manage the property but they take on a much bigger role in ‘brokering’ you a good deal with the vendor as well as attracting lessees.
Warehousing needs differ depending on the tenant and the nature of the tenant’ business, so whatever your premise has you have a fairly good chance of attracting the right lessee.
Like other commercial properties, there is always the constant threat of competition.
For example, increased demand for warehouse supply can prompt the development of industrial sites.
Keep an eye out for any development plans in the area that you’re looking at purchasing because such constructions can be a threat to existing tenancies as tenants may look to upgrade or expand. Strong supply can also reduce potential yields.
How does tax work?
You’ll be charged goods and services tax (GST) when purchasing a warehouse so you should allow an extra 10% on the property’s purchase price.
However, as an investor, you can claim GST back as an input tax credit against GST charged on the property’s rent.
Due diligence on the property
As you ask the business broker questions about the property you should also be asking why the property is being sold in the first place.
Are the vendors having trouble finding tenants? Ask the business broker for vacancy rates for the area.
Low vacancy rates are great because it’s usually indicative of healthy economic conditions in which tenants are staying put to run profitable businesses.
If you’re able to buy the warehouse at the right time, it can also result in higher rental income because of increased demand for warehouse space coupled with supply not keeping pace.
High vacancy rates, on the other hand, are a major red flag that you should keep in mind.
The other type of information you’ll want to gather is whether there is something wrong with the property or if the zoning has changed recently. Is what is advertised, or what the vendor is telling you, what you’re getting?
The only way to find out is to get out to the property and check it out with the buyers agent.
Due diligence on the tenants
Once you’ve been approved for a warehouse loan and bought the property, you’ll need to find tenants. Consider going about this like a bank: what are their strengths and weaknesses?
Ask for financial statements that prove that they’re running a profitable business and what their reasons for renting out the warehouse.
In other words, how long will they be leasing the property for, what’s their track record and what’s their business plan for staying profitable?
Be wary of any lessee that is apprehensive about supplying this type of information.
What should I consider with the lease term?
As previously mentioned, warehouse owners tend to enjoy long lease terms (usually 3,5 or 10 years) which gives them more certainty of stable rental income.
You should keep in mind that larger warehouses can be harder to lease than smaller warehouse spaces and will cost a lot more to hold.
You’re also not likely going to make as much as money with a warehouse compared to other types of commercial property but what you’re more likely to generate is a stable return on investment.
With the lease arrangement itself, be sure it spells out who is responsible for the property’s ongoing expenses.
Normally, the tenant pays all outgoings including council rates, water and electricity.
They should also “make good” any physical changes to the premises. This could be for the purposes of their business but it’s important to be aware that you, as the owner, usually have the right for the warehouse to be returned to its original state.
It’s important to speak a solicitor who specialises in industrial purposes like warehouses and factories when negotiating the Contract of Sale.
What are the benefits of buying a warehouse to run a business?
Do you need a warehouse loan to purchase the property as an owner-occupied?
There are number of benefits to this approach.
Fixed costs
If your intention is to stay profitable and own and run the business indefinitely, then purchasing, rather than renting, warehouse space may make more financial sense.
Having a fixed long-term commercial loan can give you more certainty and allow you to build your operational budget around that fixed cost. On top of that, loan repayments can actually end up being similar to paying rent anyway.
Tax benefits
You can claim tax deductions for all costs associated with owning, running and maintaining business space, including interest on the mortgage and property taxes.
Run a business and generate rental income
Is the warehouse a little too big for your needs?
Getting a warehouse loan instead of renting wasn’t necessarily a mistake!
You can actually rent out a portion of it to another tenant to generate additional income.
In addition, if you completely outgrow the warehouse, you can retain the freehold and rent out the entire premises while you continue your business elsewhere.
That’s one of the main benefits of owning the freehold: even if your business hits a rough patch, the property itself will usually retain value and may even generate capital growth depending on market conditions.
You have the freedom to make improvements or repairs to the premises
If you simply enter into a lease arrangement, there may be restrictions on what you can do with the premises. By owning the property itself, you have more freedom and security.
For example, if you need a warehouse with specialised fit-outs, such as cold storage for meat and produce, you may want to consider getting a commercial loan to buy the warehouse. This way, you have more control over improvements and repairs that need to be made to the premises.
Apart from the requirement of either a vapour absorption system (VAS) or vapour compression system (VCS), freezer warehouses also require insulation, which will need to be maintained and regularly replaced.
On top of that, any improvements made to the premises are not only adding efficiency to your business but adding to the value of the property as well.
There are some things to keep in mind in getting a warehouse loan to run a business from the premises:
- There are bigger upfront costs involved in buying a commercial property.
- Any upgrades or repairs that need to be made to the warehouse are your responsibility as the owner.
- Selling the property if you need to downsize the business or move to a new location is not as straightforward as simply coming to the end of a lease. You’ll have to find a new buyer and there may be costs involved. Vacancy rates can quite high as well.
- Renting warehouse space may be a better option for if you sell things like fruit and vegetables, plants and flowers, seafood or meat. Some of these products are seasonal so only renting for certain periods of the year makes sense.
Will the warehouse support your business?
Location
The first question to ask yourself is which region are you looking to serve?
It’s a major factor to consider when you’re trying to calculate how much you should be spending on the warehouse.
If delivery forms a large part of your business, consider the expected transportation costs from the property to the end customer.
As with any commercial property investment, look for an area offering good transport links, a nearby pool of workers and surrounding businesses that could offer support you in the long term.
Is the business involved with the storage or delivery of hazardous materials, flammable products or perishable items like fruit, vegetable and meat?
There are very strict storage and firefighting requirements, such as access to adequate fire extinguishers, for businesses like this.
In addition, consider the environment and the effects your operation could have on natural areas like streams, ponds, rivers and bushland. As long as you’re working within the boundaries of the zoning requirements, you’re likely not going to draw the wrath of the council.
Zoning matters
Zoning will not only vary from state to state but from council to council.
It’s essential you check zoning for the property you’re planning to buy because it can either prevent you from running your business there or limit the types of tenants that can use the space.
For example, some industrial zones will only allow you to store certain types of material, specifically, items that won’t compromise the long-term use of the land. Consider things like clothing and plants.
What may be considered a high-impact industrial zone is when your business is storing hazardous material like oil or fertilisers.
Get confirmation from the council that you can operate such a business before signing the Contract of Sale or Heads of Agreement.
Zoning will also have a massive effect on your ability to qualify for a warehouse loan so it’s essential that you do your due diligence before signing any contract.
Nearby infrastructure
With fuel prices ever increasing, being close to infrastructure is a powerful feature. Planned developments from the council and your state government can send demand for warehouses through the roof.
For example, the opening of the M7 bypass around the western outskirts of Sydney led to an increased demand for warehouse property in the outer ring close to the M7 exits.
Locations that have strong population growth require many services. As new suburbs are developed, shopping centres are built to service the growing consumer demand.
Consumer spending increases demand for products so the requirements for warehousing and retail outlets increase.
Do you need certain permits for the business?
Getting a lender to approve your warehouse loan is one thing but you should be aware that some types of businesses may require special council approval, for example, chemical treatment facilities such as those used by tanneries, fuel storage, or waste disposal businesses.
Check with your relevant state government agency or professional body on what permits you require.
What types of warehouses are there?
Traditional warehouses have low construction costs, usually characterised by box-shapes with no windows made out of concrete or colorbond. However, there are many different types of warehouses out there depending on what type of business you’re running:
- Manufacturing.
- Importing.
- Exporting.
- Wholesaler.
- Transportation and logistics.
Some of these warehouse types include:
Warehouse-style retail stores
This is where the warehouse serves as both storage and retail store.
They’re characterised by high-ceilings that display retail goods on tall, heavy-duty industrial racks.
Automated warehouses
These automation machines can range from small conveyor belts transporting products all the way through to fully automated facilities where only a few people are needed to handle storage activity for thousands of dollars’ worth of inventory.
Climate-controlled or refrigerated warehouses
These premises handle the storage of products that need special handling conditions. They include freezers for frozen products, humidity-controlled environments for delicate products such as produce or flowers, and dirt-free facilities for handling highly sensitive computer products.
Distribution centre or cross docking
With this type of warehouse, very little inventory is actually stored. Stock is normally received, processed, and shipped all within a short timeframe.
For example, inventory like produce or seafood usually arrives early in the morning but is then distributed to retailers and customers by close of business.
Special commodity warehouses
These warehouses are specially constructed for the storage of a particular type of commodity such as cotton, petrol products, or wool.
What type of storage do you need?
As part of warehouse management, one of the first things you’ll have to consider is what type of storage or stock system would give your business the most efficiency.
These systems include:
- Pallet racking: drive-in, drive-thru, double-deep, push pack, and gravity flow.
- Mezzanine: structural, roll-formed, and racks.
- Vertical lift modules: vertically-arranged trays stored on both sides of the unit.
- Horizontal carousels: consist of a frame and a rotating carriage of bins.
- Vertical carousels: consist of a series of carriers mounted on a vertical closed-loop track, inside a metal enclosure.
For information, support, and resources on managing your warehouse, you may want to join the Australian Warehousing Association, the peak body in Australia promoting the warehousing and logistics industry.
What has e-commerce meant for warehouses?
The boom in e-commerce and the rising use of the internet have and are continuing to spur on demand for warehouses and industrial storage.
Although internet-based stores don’t need physical retail space, they still require warehouses to store goods.
Need help qualifying for a warehouse loan?
With help from an expert that specialises in warehouse loans, you’ll have a much better chance of building a strong case and getting approved the first time around.
Please call 1300 889 743 or complete our free assessment form today and let one of our brokers help you.