Navigating investment lending in a challenging market
A downward market can present challenges for commercial property investors, including a decline in property values, reduced rental income, tighter lending conditions, increased vacancy rates, and longer holding periods.
However, it's important to remember that property markets are cyclical, and a downturn can present opportunities for investors who are willing to take a long-term view with the capacity to capitalise on the prevailing market conditions.
Non-bank lenders play an important role during a downward market, including:
Flexible loan terms: non-bank lenders can provide more flexibility in loan terms compared to traditional banks, which can be particularly beneficial in a downward market. Non-bank lenders can tailor loan repayments to the borrowers specific needs including providing interest only terms or capitalised finance costs. This change in structure can drastically improve cashflow over the short to medium term.
Faster loan approval and funding: non-bank lenders can often provide faster loan approvals and funding compared to traditional banks. This can be crucial in a downward market when property investors need to act quickly to capitalise on opportunities which are time sensitive.
Greater leverage: non-bank lenders may offer greater leverage compared to traditional banks, which means investors can borrow a higher percentage of current market value. This can be beneficial in a downward market, where property prices may have fallen, and investors may have difficulty securing funds from traditional banks due to stricter lending criteria.
Specialist knowledge of the property market: non-bank lenders, in many cases, have a first hand understanding of local property investment markets. This first hand knowledge means they have a good understanding of key market drivers and associated risks which can speed up the decision making process.
Access to niche loan products: non-bank lenders can provide access to niche loan products that may not be available from traditional banks. This can include short-term loans or bridging financing, which can be useful in a downward market when investors need to act quickly.
Overall, using non-bank lenders for property investment loans can provide greater flexibility, faster funding, and access to specialised knowledge and niche loan products. This can be particularly beneficial in a downward market when traditional banks may be more cautious about lending to property investors.
Non bank investment lending should be used over the short to medium term while you execute a strategy which improves the long term cashflow of your portfolio. Non bank lending is usually more expensive compared to traditional banks, therefore its a suboptimal structure for long term investment lending.
It's important to carefully consider the risks and costs associated with borrowing from non-bank lenders and seek professional advice before making any investment and funding decisions.