Getting finance for a Restaurant during Covid-19

Discussion in 'Loans & Mortgage Brokers' started by Carol M, 4th May, 2020.

Join Australia's most dynamic and respected property investment community
  1. Carol M

    Carol M Well-Known Member

    Joined:
    3rd Jun, 2018
    Posts:
    110
    Location:
    Newcastle NSW
    Hi,
    Any thoughts on how to get finance to purchase a fabulous Freehold Restaurant in current climate.
    Rent return from existing tenant is great and is still being paid (though not operating during pandemic).
    Are any lenders likely to count any of the great rental income, cos it would be hard to service it just from our own income.
    We can pay the 30% deposit, and wanted a 20-25 year P & I loan.
    Why would I be nuts enough to buy such a place now - because it is sitting on prime land, worth many times more than asking price, with huge future potential. Could also be converted back to grand old home to live in one day.
    (unable to convert back now, as existing lease is in place for quite a while).
    Rental income is $50,000/year and loan required is $400,000, for a $550,000 purchase.
    Just gotta work out how to get a loan for it, with some/any? of the rental income being counted to service it.
    Thanks
     
  2. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

    Joined:
    15th Aug, 2005
    Posts:
    7,522
    Location:
    Gold Coast
    How long is the current lease actually, and do u have the financials of the business ?


    ta
    rolf
     
    Lindsay_W likes this.
  3. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    15,067
    Location:
    Sydney
    I would doubt any lenders want exposure to restaurant tenancies given they are closed and with a moritorium on rent and accruing a debt on the rent as well as being smashed by costs.

    Their going concern capabilities are compromised and may remain so for some time as they seek to get back to operations and repay debt etc. Its a possible equal bet it could fail. Strange that zoning laws would allow a former home to be a restaurant and then converted back (at major cost) to a home if it is a prime development site. If you cant afford to fund it you cant afford the development costs and the costs to refit the site if it fails and the fitout is left behind.

    And if it fails you may be up for GST on the purchase since the GST going concern method is lost. Where would you find $55,000 extra ?
     
    Lindsay_W likes this.
  4. Lindsay_W

    Lindsay_W Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    2,445
    Location:
    QLD
    If that's true, then ask yourself why do you think it is priced the way it is currently?
     
  5. Carol M

    Carol M Well-Known Member

    Joined:
    3rd Jun, 2018
    Posts:
    110
    Location:
    Newcastle NSW
     
  6. Carol M

    Carol M Well-Known Member

    Joined:
    3rd Jun, 2018
    Posts:
    110
    Location:
    Newcastle NSW
    Thanks for detailed info. It confirms what I suspected about lenders current attitudes. Refit and zoning are not a problem, but the refit could not be done for several years anyway due to long lease, so it is stuck as a restaurant for now. The GST going concern is something to consider, which is why we need an expert broker if we ever proceed. We may wait a few months and see how restaurants are faring, and what lenders think of them then. Cheers.