For entrepreneurs and investors looking to purchase commercial real estate in British Columbia, one of the first and most important questions to answer is this: Will the property be owner-occupied or investment-only? The answer significantly impacts the type of commercial mortgage you’ll need, the underwriting process, and the lender’s criteria for approval.
Understanding the distinction between these two categories is essential. While both involve financing commercial real estate, the purpose of the property—whether you plan to run your business from it or lease it to tenants—plays a crucial role in determining everything from interest rates to risk assessments.
The type of mortgage you choose—owner-occupied vs. investment—affects everything from your down payment to lender requirements. Getting this right from the beginning helps ensure smoother financing
An owner-occupied commercial property is used primarily by the borrower to operate their own business. The key condition most lenders apply is that the borrower occupies at least 51% of the property’s usable space. This type of mortgage is often used by:
Because the property is integral to business operations, lenders typically view owner-occupied mortgages as less risky. You have a direct interest in maintaining the building, ensuring timely payments, and sustaining business success.
If your business occupies more than half the space, you may qualify for more favourable mortgage terms compared to investors.
An investment commercial property, on the other hand, is purchased strictly for income generation through leasing. The borrower does not use the space for their own business but instead rents it to third-party tenants. This category includes:
Because rental income is the primary driver of financial viability, lenders will assess factors like lease agreements, tenant quality, and historical vacancy rates. Investment properties are generally considered higher-risk compared to owner-occupied ones, especially when leased to small businesses or in markets with fluctuating occupancy.
While both property types fall under the umbrella of commercial real estate financing, the differences in mortgage terms and approval criteria are significant.
Down Payment Requirements
Owner-occupied commercial mortgages typically require a lower down payment, often around 20–25%, as lenders see less risk when the borrower occupies and operates their business from the property. Investment properties, however, generally demand a higher down payment, usually 25–35% or more, especially when the property lacks stable tenants or long-term lease agreements.
Interest Rates
Interest rates tend to be lower for owner-occupied properties because the risk is mitigated by the borrower’s personal business involvement in the space. Conversely, lenders often charge slightly higher interest rates on investment property mortgages to compensate for the unpredictability associated with tenant turnover and market variability.
Amortization Period
The amortization period for both types of commercial properties typically ranges from 15 to 25 years. The specific duration depends on the lender’s policy, the borrower’s financial profile, and the type and condition of the property being financed.
Debt-Service Coverage Ratio (DSCR)
With owner-occupied properties, lenders look closely at the business’s financials and the borrower’s personal credit to ensure they can meet repayment obligations. For investment properties, the DSCR becomes a central factor in underwriting, with most lenders requiring a ratio of 1.25 or higher to ensure that rental income sufficiently covers debt obligations.
Income Verification
Income verification for owner-occupied loans relies on reviewing the borrower’s business tax returns, profit-and-loss statements, and financial projections. In contrast, investment property mortgages depend heavily on lease agreements, tenant payment histories, and the overall Net Operating Income (NOI) of the building.
Property Use and Zoning
Owner-occupied properties must align with the specific operational needs of the business and be zoned accordingly for the intended use. Investment properties must meet zoning criteria for rental use, and the tenant mix and location play critical roles in how favourably the lender views the application.
For owner-occupied applications, personal guarantees and business performance history often carry more weight. For investment deals, it’s all about tenant quality and lease terms.
Deciding whether to pursue an owner-occupied or investment mortgage isn’t just a technical distinction—it should align with your broader business or investment goals. If you’re an owner-operator, think long-term about the benefits of stability and control over your working environment. Consider whether owning your property is more cost-effective than leasing and whether the space allows for future growth. A commercial property should support your business’s operational needs not just today, but also five or ten years from now.
For real estate investors, the strategic lens is different. It’s important to assess market demand, expected turnover, and your ability to maintain occupancy during economic fluctuations. Understanding local vacancy rates, competition, and tenant demographics helps you make informed decisions. You’ll also want to ensure that your cash flow can absorb the impact of vacant units or unexpected repairs. The success of an investment property relies heavily on tenant quality, lease stability, and effective property management.
In both cases, the guidance of a mortgage broker with expertise in BC’s commercial lending environment can be invaluable. An experienced broker will help you structure your deal to reflect your financial strategy and identify lenders best suited to your profile. Whether you’re looking for flexible repayment options or aiming to maximize leverage while keeping risk manageable, having a knowledgeable advocate ensures your mortgage supports your broader business goals.
How your business is legally structured can influence the terms of your commercial mortgage. Whether you’re operating as a sole proprietorship, partnership, incorporated business, or holding company, lenders assess the borrower profile differently depending on the entity.
For owner-occupied mortgages, incorporated businesses often receive more favourable terms due to their established legal separation between personal and business finances. However, sole proprietors may be able to leverage personal credit history more directly in their favour. Lenders will examine who is signing the mortgage—whether it’s the individual, the corporation, or both with personal guarantees.
For investment properties, using a holding company or numbered corporation is common. This structure can offer tax advantages and risk mitigation by isolating property ownership from other business liabilities. That said, lenders typically still require personal guarantees from directors or shareholders, especially for new entities without a track record.
Before applying, speak with your accountant and mortgage broker to determine the most beneficial legal setup. A strategic business structure can streamline approval, improve financing terms, and protect your long-term investment interests.
Commercial activity across Abbotsford, Chilliwack, and Langley continues to expand, driven by population growth and infrastructure investments. For owner-occupiers, this often means increasing demand for standalone or strata units suited to trades and services. For investors, mixed-use buildings and industrial warehouses are highly sought after, with rental yields remaining attractive despite rising interest rates.
That said, local zoning bylaws, neighbourhood development plans, and tenant demographics vary widely across the Fraser Valley. A property ideal for an electrical contractor in Abbotsford may not be suitable for an investment strategy in central Chilliwack. Understanding how municipal frameworks impact usage and development potential is critical before applying for financing.
Municipal plans can make or break your investment potential. Always review long-term zoning and development trends before making a purchase.
Choosing between an owner-occupied and investment commercial mortgage comes down to the property’s use, your financial strategy, and your ability to meet lender expectations. Understanding the key differences in structure, risk assessment, and approval criteria can help you prepare a stronger application and make informed property decisions.
Whether you’re buying your first commercial space for your business or expanding your portfolio of rental properties, clarity about mortgage requirements and property classification is essential. Partnering with an experienced commercial mortgage broker who works closely with lenders in BC can make a significant difference in navigating the application process smoothly and successfully.
No. Commercial properties are zoned for business use, not residential living. You may operate your business from the property, but it cannot legally serve as your primary residence.
Yes. Many borrowers use a portion of the space for their business and lease out the remainder. As long as the owner occupies at least 51%, it qualifies as owner-occupied.
Generally, yes. Lenders view owner-occupied properties as less risky because they are tied to a functioning business with vested interest in upkeep and stability.
Yes. Investment commercial mortgages typically require a larger down payment due to the increased risk associated with relying on tenant income.
Typical requirements include personal and business financial statements, tax returns, lease agreements (if applicable), a business plan, and property details such as appraisal and zoning.
