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Lease Doc loans are commercial loans that are significantly easier to obtain thanks to how they’re assessed. Your ability to service a Lease Doc Loan is based on your property’s rental income from the lease, rather than on your personal income or business financials. This makes them ideal for those of you who are self-employed or an investor who hates paperwork.
This article is going to explain who benefits most from lease doc loans, why they’re a good idea, and how you use your rental income rather than personal income and tax returns.
What is a Lease Doc Loan?
This is a commercial property loan where the bank, or finance lender, assesses a borrower’s ability to service the loan based on the actual or potential rental income from the lease agreement. The assessment is not based on your personal finances or your business’s detailed financial transactions. This makes obtaining a loan easier especially those with complex business financial setups.
The consistency and regularity of rental repayments is also reassuring to the banks for considering the power to repay the loan.
Who Wants a Lease Doc Loan?
If you’re an experienced investor who is looking to scale your portfolio rapidly but don’t have time for lengthy financial checks, this type of loan is for you. A lease doc loan can help you grab hot property before it disappears from the market.
If you’re self-employed or a contractor who has a complicated financial structure or an income that is seasonal or fluctuating, this is for you. Freelancers can often earn a good amount of money in a financial year, but the feast and famine model can make regular amounts of repayments tricky. Having a loan based off an asset’s earning potential, rather than you, can ease that burden.
Overseas buyers who have a history of local investing but don't have a local-based income would suit this type of loan.
Those of you who are capital rich but income light would suit this loan, such as retirees. You have strong assets but you have a low paper-based income, then you would love this type of loan.
What are the Benefits of a Lease Doc Loan?
The application is simpler with less paperwork. As the repayments are based on rental payments, which are regular and consistent, there is no need for financial records of personal income and business income.
This helps those who have very little documentation of transactional finance, such as payslips and income. If you can show a lease, especially one that has been in place for some time, and that the rental payments have been made regularly, and on time, this bodes well in your favour.
As the paperwork is minimal this can speed up the approval process. If you’re needing quick finance, this could be the loan for you.
Because the loan is secured by the commercial property itself, banks and lending institutions feel more confident in approving such loans.
This loan type covers multiple different kinds of property types. Various types of commercial properties such as office space or retail, industrial and warehouse space all can be covered by this type of loan. Such versatility can be very beneficial to investors and entrepreneurs.
A lease doc loan is an easy and simplified way for you to invest in commercial property and grow your commercial portfolio.
How does it work?
As mentioned, this is a simplified loan based on your commercial rental income, or potential. When applying for the loan, you can compare what the cost of servicing and repaying your loan is, to what our rental income from your property will be. If the rental income will cover the loan, then you are likely to be approved for this type of loan.
The commercial property from which the rental income is sourced will be the security for the loan.
You can be a seasoned commercial property investor, or it could be your first time investing in commercial property, as long as the rental income meets the requirements, you’re a good chance to be approved for this type of loan.
Requirements for a Lease Doc Loan
The security for this loan needs to be a non-specialised commercial property, such as a retail space, industrial, office or warehouse space. This allows for easy turnover if the loan is defaulted.
The lease must be an active, arms-length lease agreement. This is a legally binding agreement/contract between two independent, third parties acting in self-interest. ‘Active’ means the lease is currently in effect rather than an inactive or pending agreement.
The lease must also show fair market value and be consistent with what an independent third party would agree to. You cannot inflate rental income to secure a loan.
If you can, you must provide a tenancy schedule for the occupied commercial property.
A contract of sale if you are purchasing, or 6 - 12 months worth of loan and transaction statements are required if you are refinancing.
How can I Apply for a Lease Doc Loan?
Applying for this type of loan is simple and straightforward.
- Contact Hodgestone Finance via our phone number- 1300 463 439 or fill out our online enquiry form.
- Provide us with your lease documentation, lease contracts and rental income statements.
- Our loan brokers assess your eligibility and connect you with suitable lenders.
- We’ll support you throughout the whole process, making sure you’ve crossed all the t’s and dotted all the i’s.
- We will answer all your questions and try to make the process as quick and clear as possible.
Do some due diligence before you apply to avoid disappointment. Send us your Lease Agreements so we may assess the viability of it, the strength and the terms and conditions that apply to it. As this will be the source of your loan repayments, if you don’t have secure leases, it may be either tricky to get a loan, or you may run the risk of defaulting on the loan.
This type of loan is great for people looking to grow their portfolio or looking to reinvest into their business. Our experienced team here at Hodgestone Finance can help you navigate the world of loans and financing, explaining everything in clear terms to find a solution that best fits your business needs.
FAQ
What types of properties can I buy with a Lease Doc Loan?
You can buy standard commercial properties, such as retail, industrial warehouses or offices, and they must be located in a major metropolitan or regional area.
What if I don't yet have a signed lease?
While having a signed lease is preferable, you can be pre-approved on the condition that there will be a signed lease and a satisfactory tenant in your property within a designated amount of time. This will depend on the lender.
How will the lender assess my commercial lease income?
They will look at the financial strength of the commercial tenant. They will also look at the remaining time on the lease, and generally it must be greater than 12 months. The interest cover ratio differs from lender to lender so consult with us about this.
What is an Interest Cover Ratio?
An Interest Cover Ratio (ICR) measures how comfortably your lease income covers loan interest. The ICR ratios can differ depending on where you apply for your loan. Check with Hodgeston Finance for your initial assessment so we can calculate your ICR.
This rate differs depending on such things as good property conditions, strong tenants or long-term tenants.
We find you the suitable loan that works for you.
Take the first step toward financial freedom with our quick and hassle-free loan process. Apply now and secure your ideal loan.
