The residential market is currently quite subdued. This means many investors are now looking at branching out into commercial property investment.
Commercial property is very different to residential property. As the property is different, so are the loans provided to buy them.
Generally speaking, loans secured by commercial property have shorter loan terms. Home loans are usually offered with 30 year terms, commercial loans are much shorter. Terms range between 10 and 25 years depending on the nature of the business and the property itself.
Commercial loans are less standardised than home loans and often have higher fees involved. This can be in terms of entering the loan agreement, valuation fees and legal costs. There may also be ongoing loan review fees.
Commercial loans don’t offer mortgage insurance which usually means you need a higher deposit. For many lenders this is as much as 30% plus your purchase costs. We do have lenders that will lend up to 80% of the commercial property’s value.
Its also important to note that commercial interest rates are based on the perceived risk to the bank. This risk includes the type of property, as well as the banks estimate of the risk attached to the borrower.
Commercial property investment is different to renting a residential property. This is because a commercial property is used in a different way.
Commercial property’s usually have longer leases than residential property’s. Commercial leases are often as long as 5-years with extra term options included.
Rates and maintenance are usually paid by the landlord when renting a residential property. In many commercial rental agreements this obligation falls to the lessee.
GST usually applies to both the commercial property purchase as well as rental agreements. It is important to get your Accountants advice before entering in to a contract. They will make sure all factors considered. This includes considering if the entity renting the property should be registered for GST.
Want to find out more about your commercial property loan options? Please get in touch with us about our obligation free mortgage broker service.
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