Thinking about buying a commercial property?

Here are some tips to learn about how commercial property loans work and what you can expect from commercial property interest rates.

- Commercial property can be an excellent investment.

- A wide range of commercial property loans is available.

- Commercial property loan rates are slightly higher than a regular home loan.

- Commercial property loans often require a larger deposit than a regular mortgage (but not always, with some main stream lenders needing only a 20% deposit).There are a wide variety of commercial property loans. The sort of loan best suited to you will depend on whether you are buying commercial property as an investor or as a business owner. For use by your business or to rent it out.

TIP! Offering residential property like your home or rental property as security can help to lower commercial property interest rates.

Be prepared to pay a higher deposit: commercial property loans usually need a deposit of at least 20% of the purchase price, and some lenders require more.

Features of some commercial property loans:

- Choose between a variable rate, fixed rate, split rate, principal and interest or interest-only loan.

- Many commercial property loans come with offset and fee-free additional repayments.

- You may prefer a line of credit commercial property loan. This gives you funding up to a predetermined limit and you only pay interest on the funds drawn down. This is where your brokers guidance comes in handy.

Commercial vs. residential property loans:

1. Long term leases:

- Commercial property leases usually run for longer periods than residential properties

– several years rather than 6 to 12 months.

- You get greater certainty of rental income, plus rents tend to be reviewed annually and increase with inflation. However, vacancy periods can be longer.

2. The impact of GST:

- Goods and services tax (GST) applies when you buy a commercial property, so allow an extra 10% on the property’s purchase price.

- As an investor, you can claim the GST back as an ‘input tax credit’ against GST charged on the property’s rent.

3. The lessee pays maintenance costs:

- The costs of maintenance, rates and repairs on a commercial property are paid by the lessee – not the landlord.

- Make sure your commercial lease spells out who is responsible for the property’s ongoing expenses. Certainly a perk of commercial investing over residential.

4. Commercial properties may have a limited purpose:

- It can be harder to secure a lessee on a property that’s designed for a specific purpose.

- Best to look for a property with a multi-use to attract a broader range of tenants.

5. Location is still key:

- Location plays a big role in the success of commercial property. - Look for an area offering good transport links, a nearby pool of workers, and surrounding businesses that could offer support to lessees.

6. Does commercial property achieve better rental returns?

- Commercial property is usually regarded as a higher risk asset than residential property, and reflecting this, the rental return is usually higher.

- However, the decision between investing in residential or commercial property is a personal choice that will depend on the investor’s financial circumstances, goals and willingness to take on this higher risk investment.

- Seek the help of a commercial buyers agent, experienced commercial real estate agent, and a good finance broker who knows this space. Best not to go it alone.

Have you found a commercial property or want to get a pre-approval into place? Give me a call. I get paid by the lender, I don't charge a fee.

Loan Market - Matthew Stack

0423 237 242

[email protected]

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