In today’s article we unpack a commercial property loan product known as a “Lease Doc” loan. 

When we start talking about commercial property, we start to hear terms we are unfamiliar with such as WALE, lease doc, un-regulated.

Today we are breaking down a type of product in the commercial space known as lease doc lending.

So what is Lease Doc lending?

Lease Doc loans are a type of product where only the net rental income from a commercial property is used to service the loan.

These products are offered by a small number of lenders in the market, all with differing requirements.

How do lenders calculate your serviceability with Lease Doc?

Let’s say we are doing a lease doc loan on a commercial property, so servicing using only the rental income within a special purpose vehicle (generally a discretionary trust).

For commercial lease doc with a major bank, they would require a buffer of 0.50% to be applied to the actual rate, which is roughly around 6.50% for lease doc.

For servicing the bank is looking for interest cover of 1.50x based on the sensitised rate using only the net rent excl. interest.

On a $1m lend @ 7% we are looking at $70,000 in interest.
Generally max LVR is about 65%, so let’s say the property is worth $1.54m

Net rent to service @ 65% LVR on lease doc would be 6.82% p.a.

Assuming no costs are recoverable, estimate costs and CAPEX we could assume this is 20% of the gross rent, we are looking at a gross rent of $131,285 p.a. which is 8.53% gross.

We generally see lease doc work well around the 55% LVR mark due to the net rent required being 5.78% which is more inline with the properties we are seeing come across our desk at the moment.

We are seeing net rent of approx. 6% - 6.50% for all deals we have seen recently.

What documents are required for this type of loan?

Generally you will require the following information for a lease doc loan:

• Signed Application Form
• Leases for the subject property
• Trust Deed if using a trust in some instances

This is generally all lenders will ask for when completing one of these applications.

What are the Pros and Cons of a Lease-Doc loan?

The Pros!

• Generally a simpler application process
• Similar rate to standard commercial loans
• Low Buffer rate of 0.50% to 1% making servicing easier

The Cons!

• Terms are generally tied back to the lease, meaning if your property is vacant upon renewal you may fall into default
• Sometimes a higher interest rate and fees depending on lender

What are the next steps?

If you would like to learn more about a lease doc loan, please reach out to me via the link below to get started!

Click Me to Book a Complimentary Appointment Here!