Entry Level Commercial Property

Hey Guys,

So Im looking at trying to get my first commercial property, I currently have 220K in cash for a deposit and am talking to a broker to see what my lending power is.

Would you recommend saving a bigger deposit to try and get a better quality asset?
Do banks do 20% deposits on smaller loans like sub million?

Thanks
Jack

 

Welcome and good luck.

Commercial property may have lower LVRs e.g. 70% but yeah speak to your broker.

Depends where you're buying. Better quality means safer but lower returns due to better location and tenant.

Where quality really matters is expected vacancy which is an educated guess at best. For example, 7% or 8% looks good on paper until your gut says every 3rd or 4th year there might be vacancy. Then it's more like 3-4% + stress + extra costs.

 

Smaller commercial properties can be a bit like lotto with the tenants. If you get a good one then happy days - but sometimes these small properties spend two thirds of their life vacant or occupied by a tenant who cannot afford to pay the rent.

If you get a larger property the tenants become bigger and (generally) more financially stable.

Whatever you do make sure you can survive 18 months vacant with a three percent interest hike. If you can’t then you a taking a risk.

 

I'm in a similar situation. After looking at what's currently available in the entry price bracket coupled with the level of competition for something investment grade (which is few and far between), I've opted for putting together a larger deposit through my resi properties in the next 3 years and trying to secure a better quality commercial asset. Aiming at $500,000 to $700,000 for a deposit + acquisition costs (depending on how Brisbane and Hobart performs over the next few years) and go from there. Personally, going after an entry level commercial property at the moment, where it's your first purchase, is on the risky side