Hi All, Given the Sydney market with residential, I am thinking about investing in commercial property. I have several residential but don't really know much about commercial. Any ideas where to start, tips books etc etc Thank you
Commercial property is a cash-flow play so pay attention to the terms of the lease agreement. Finance will be particularly hard to get if there isn't a lease in place. Make sure you get a solicitor that understands commercial leases and contract of sales, i.e don't get your resi conveyancer to review a commercial COS. Finance is also very different to residential lending. Consider the following: 1. Loan terms are generally 15 years but some lender do 25 years 2. Unlike residential lending, IO strategy does not particularly work in commercial lending 3. Different asset type (pub, childcare, office, industrial, etc) will dictate the amount of deposit you will require 4. Rates and fees are higher than resi so factor this in your feasibility study 5. Commercial lending doesn't have a lot of the features than commercial lending does like offsets (although one lender does offer it)
Shahin, can you expand in point 2? I know a few bods who don't do p&i at all on their commercial properties.
Below are somewhat generalisations but The Good Tenants pay for everything Tenants can spend large sums improving the place Long Leases The Bad Harder to finance Larger Deposits Longer Vacancies Price Fluctuations
Depends on strategy (e.g. how long you plan to hold, etc) and also the lender. Majority of lenders are going to do a 15 year term. You can come undone if you do 5 year IO and then you go to roll the term over for another 5 years and the lender's appetite as changed, or your financials have changed or there isn't a fixed term lease (could be a month to month lease which the lender most likely isn't going to accept). It may be more suitable to go with a lender offering 25 year term and P&I. Residential is obviously a very different story.
And GST is a yield killer in commercial as is finance costs as well as the lease terms in commercial which are long term.Yet lenders still see resi investors as low risk but due to inflexible taxes and look lease issues its the comm that is inflexible
+1 here, be careful with IO periods in commercial, some lenders do require a review of the commercial facility on a periodical basis...
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