Owning a commercial property outright may seem like the end game, but it shouldn’t be. If anything, having a paid-up property can become a growth ceiling if that asset sits idle while opportunities to leverage its value pass you by.
Landlords often build up a strong-performing asset over time, with a stable tenant mix and reliable rental inflows. As a result, they manage to pay the original debt down and once it is settled, they overlook the potential to leverage it. There’s no reinvestment, no strategic leveraging of the asset and, as a result, no portfolio growth. They’re no longer investors; they’re merely asset holders.
On the other hand, we also see many investors, particularly new players, who have much leaner balance sheets, but are always looking for opportunities to snap up distressed assets, scaling up their portfolios smartly and building equity off the back of finance.
This mental shift from wealth preservation to strategic growth is one that many seasoned investors need to make. This is done by refinancing a paid-up commercial property to unlock trapped capital and put it to work, without giving up control of the asset.
Our property finance solutions make that process easier and faster for clients who have strong repayment histories. For example, if a business consistently uses their rental income to drive down their capital debt, and has steady operating margins, we have the ability – and the will – to move quickly to enable them to leverage their assets to take advantage of calculated growth opportunities.
That flexibility is where the advantage often lies. Sellers today generally don’t want conditional offers; they want certainty that a deal is done. So, if you can walk into a negotiation with the confidence that the bank will provide the cash, you’re in a great position to secure a better price, close the deal faster and avoid being outbid by other buyers.
Businesses don’t only leverage the equity in a paid-off property to expand their portfolio. A re-advance can also be a useful, and very affordable, way to fund renovations and improvements like solar, boreholes and backup systems. These are no longer “nice to have” property components; they’re critical differentiators that allow landlords to attract and retain good tenants while controlling utility costs.
Then there’s also the tax benefit to consider. Interest on your refinanced commercial property loan is tax-deductible. If you’ve been running a debt-free building with high rental yields, that income is probably pushing up your tax liability. Leveraging the asset is a good way to reshape your cash flow to improve tax efficiency by having more control over how and when profits are realised.
What’s also important, but often overlooked, is how refinancing an asset can enable or support diversification. A single asset, no matter how well it performs, is still a concentration risk. If the tenant leaves, the area deteriorates, or market-related rentals drop, your income is exposed. But if you’ve diversified by having multiple properties – with different locations and different tenant profiles – you’ve baked resilience into your portfolio.
We’ve seen this strategy continuously work for businesses. They start with one building that works well for them, then refinance it after three to five years and buy a second. When that one also performs well, they refinance again, improve both assets, and acquire a third. Within a few years, they’ve moved from being a landlord to being a portfolio investor. And given their strategic mindset and proven business acumen, FNB has been more than happy to help them make this shift.
While paying off a building might give you peace of mind, it doesn’t create momentum or scale. This isn’t about over-extending or ‘betting the business’ – it’s simply about using the equity you have strategically and not seeing the day the loan is paid off as the time to stop, but rather as the moment to really get started.
Makhosini Ndlovu, Head of Product: Commercial Property Finance at FNB. He writes in his own capacity.
