Need a home loan to buy a bed and breakfast

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moneytree
Posts: 30
Joined: Thu Jun 20, 2013 6:43 pm

Need a home loan to buy a bed and breakfast

Post by moneytree »

Hello brokers, I am thinking of buying a B&B (bed and breakfast) and running it as a side business. How difficult is it to get a loan for something like this?

I have about $150,000 in savings but I want to borrow as much as I can. I’d also appreciate it if you could tell me anything that you think would be useful to me.

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Otto Dargan
Mortgage Specialist
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Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
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Re: Need a home loan to buy a bed and breakfast

Post by Otto Dargan »

Hi and welcome to the forums moneytree,

On the whole bed and breakfast properties are harder to finance since they are not your typical property and most lenders do not consider them as residential properties. They feel that it is harder to sell these in the event that you cannot pay back the loan and they will take a loss which makes your loan application appear more risky to them.

In any case how much you can borrow for a loan to buy a bed and breakfast property can range from 80% to 90% as follows:
  • If it is a standard property that can be used as a residential home and you are currently employed then you may be able to borrow up to 90% of the property value.
  • If it is a specialised property that can only be used as a bed and breakfast then you may be restricted to borrowing only up to 80%.
  • If you plan to generate an income from the property and use it to pay back the loan then you can borrow up to 80%.
Fortunately you can still be eligible for discounts on a case by case basis through our lenders.

FYI a bed and breakfast is a principle place of residence (PPoR) with less than 10 rooms. The business should be able to offer overnight accommodation and breakfast as the name implies. The property itself may have the rooms attached to the main building or they can separate.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

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mochiXmochi
Posts: 40
Joined: Tue Aug 10, 2010 1:59 pm

Re: Need a home loan to buy a bed and breakfast

Post by mochiXmochi »

Hi, I am also thinking of investing in a business like this but I don’t so much money in my savings account. I do have a fulltime job as a customer service manager at an car company and I will not be quitting it to run the B&B.

Will I still need to put up a 20% deposit in this case?

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Otto Dargan
Mortgage Specialist
Posts: 7730
Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
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Re: Need a home loan to buy a bed and breakfast

Post by Otto Dargan »

Hi mochiXmochi,

Usually it is best to save up at least 10% to 20% as your deposit on top of which you may also need about 5% of the property value to cover your other costs such as stamp duty.

If you like you can also apply for a guarantor loan where you may be able to borrow up to 105% of the property value and best of all, you may not have to put up a deposit.

If you like I can ell you more about this.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

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mochiXmochi
Posts: 40
Joined: Tue Aug 10, 2010 1:59 pm

Re: Need a home loan to buy a bed and breakfast

Post by mochiXmochi »

Yea sure, it would be great if you could give me a quick brief about guarantor loans!

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Otto Dargan
Mortgage Specialist
Posts: 7730
Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
Contact:

Re: Need a home loan to buy a bed and breakfast

Post by Otto Dargan »

Hi mochiXmochi, basically a guarantor loan is where your guarantor puts up their property as security for your home loan which allows you to borrow up to 100% or more.

The percentage you can borrow will depend on your purpose and your situation:
  • If you are buying your first home then you can borrow up to 105%
  • If you are constructing a home then you can borrow up to 105% of the total value of the land and cost of construction
  • If you are refinancing then you can borrow up to 100%
  • If you are consolidating your debts and purchasing a property then you can borrow up to 110%
  • If you are investing then you can borrow up to 105% of the property value
Usually lenders will not have a maximum loan size however if you are borrowing more than $1,000,000 then the lending guidelines will be stricter.

You can read more about guarantor loans on our website or you can also call us directly on 1300 889 743 to speak to our mortgage brokers. You can also send us an online enquiry if you like.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

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mochiXmochi
Posts: 40
Joined: Tue Aug 10, 2010 1:59 pm

Re: Need a home loan to buy a bed and breakfast

Post by mochiXmochi »

Will it be a problem if I want to buy a B&B and want to run it myself?

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Otto Dargan
Mortgage Specialist
Posts: 7730
Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
Contact:

Re: Need a home loan to buy a bed and breakfast

Post by Otto Dargan »

Hi mochiXmochi,

In most cases the owner of the property handles the cleaning and cooking. Please note that if you hire extra staff for this then the property is considered to be specialised and your loan amount can be reduced. This is because then the property is not considered a residential property and if you try to more than 80% you may be declined.

The reason behind this is because a loan over 80% LVR will require you to pay an LMI fee and the LMI provider may consider you reliant on the income generated by the business.

In this case you will need to apply for a commercial loan which means that you may have to pay a higher rate and will need a larger deposit for your loan.

If you already are working then we can also help you prove to the lender that you have another income source and you may be able to get a lower rate in this case.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

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