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Commercial Property Loans & Strategies

Commercial Property Strategy - An Overview

Most investors feel comfortable investing in residential property as they are familiar with it - whether it is a house or an apartment.

Commercial property, on the other hand, is not as well known. Those who do not deal with the day-to-day matters of running a business from a commercial building would probably be unfamiliar with the terms and conditions of commercial leases, GST implications and who is responsible for the outgoings (expenses) of the building.

Commercial property comes in three main forms: office, retail and industrial. Investing in commercial property is quite different to residential property.

Loans:

Loans to LIfestyle can finance many different and varied commercial options to suite the cash flow of the opportunity. Typical security includes

Funding can be arranged on standard variable, interest only (capitalised or monthly) in either specialist low doc or full doc format from a wide variety of private investors and institutional lenders. As a general guide most lenders will accept an LVR up to 75% for a first registered mortgage, but this may vary higher or lower depending on the lender, the project, and the security.

Additional we have the ability to arrange equity funding or a debt / equity mix if the project requires this.

Start you commercial loan enquiry here.

Returns:

Residential property investment is relatively low risk and, as a consequence, has a low return. Commercial property has a higher return but comes at a higher risk.

Risk:

The higher risk comes in the form of higher vacancy rates. Let’s use the office example. It could take a while to find a new tenant for an office - many months and possibly more than a year. Conversely, finding a new tenant for a residential property generally takes a week or two.

Duration of leases

Residential leases tend to be for six or 12 months. However, commercial property leases are generally for a much longer period of time. It is not uncommon to have leases that are for an initial five year period with the option to renew for another five years.

Quality of tenant

The tenant is obviously a crucial part of a property investment. In commercial property, a government or large corporate tenant is considered a ‘blue chip’ tenant.

Economic performance

As in any form of property investment the economy is vital to financial health. Consumer and business confidence typically changes with the economy. When confidence is extremely low, there are many businesses that have to close. If a building has one of these businesses as a sole tenant, there could be some very hard times for the commercial investor.

High cost of entry

Buying commercial property is often much more expensive than buying residential property. CBD office or retail space is generally the most expensive space given its locality. Industrial property on the outskirts of the city can also be expensive due to the size of the property being purchased.

Maintenance costs

Upgrading a residential property is relatively cheap. A paint job, new floor coverings, kitchen and bathroom can cost as little as $20,000 to $30,000. Refurbishing a commercial building, however, can be a very costly exercise.

Outgoings

One of the advantages of being an owner of commercial property is that the tenant usually pays most of the outgoings such as council rates, insurance, repairs and maintenance. All details of who pays the outgoings, how much rent is owed and how often it is increased are outlined in the lease.

The lease

This is the most important document in relation to commercial property. Unlike a residential lease which is commonly a standard document of about four pages, commercial leases are often 50 to 60 pages in length, are not standard documents and generally need a solicitor to draw them up. Read the lease carefully. If you are unsure of anything, ask a legal professional to explain it to you.

Download a full version of Commercial Property Strategy from the image below.

Commercial Property Strategy

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