You may be a mum and dad investor who is looking at diversifying your investment portfolio. You might be a business owner who is tired of renting premises, or you may be a bit of both. Owning a commercial property can be a great investment. Here are a few things to take into account as part of your thought processes. Now first, the disclaimer. I intend this blog as just a discussion on my thoughts on the topic. This blog is general in nature, and in no way is this to be constituted as advice. Everyone’s circumstances are unique, and you should come to have a chat with us if you would like advice on finance structuring, failing that we can point you in the direction of some of our trusted partners if you require financial advice.
Commercial properties can have very good investment returns on them, some bringing in returns between the 7% and 10 % sometimes even higher than that. Having the right commercial property thus can be quite lucrative if indeed you have found the right one. Finding the right property is really the key, though, and can also be the flip side of the coin in this instance. Much more homework needs to be done with regards to that properties uses as well as the type of tenants, if any, that would be attracted to it. As a potential purchaser, you really need to be making an educated purchase, so if you are not sure, find an expert that can help or instead don’t enter that market. Another positive of a commercial property is that unlike a rental property, all the outgoings of the property with regards to utilities are normally covered by the tenant. Fewer overheads from the former mean more money in your pocket. Another plus in South Australia is that you do not need to pay Stamp Duty on the purchase of commercial property here.
Commercial properties are considered a more risky asset by lenders, and this is reflected by them requiring a higher deposit when financing them. Typically a commercial property requires a minimum of a 30% deposit and can easily require more. Lenders will also only usually take 70% of the rental income to service the new loan. This is to take into account the times that commercial properties can stand untenanted. Loans on commercial property have a term of between 10 and 15 years, so if you are going to repay the loan on a principal and interest basis, the repayments will be substantial. The flip side of a shorter loan term is the asset will be yours sooner, though. Many lenders will also review the loan every 3 to 5 years, meaning they will have a look at the business, loan, and property and re-evaluate the interest rate or whether the loan is still suitable. Valuations on commercial properties are a lot more expensive too, due to the valuation firm having to take a lot more information into account with regards to market dynamics. A base valuation for a small, simple commercial property will probably start at around the $1500.00 and run into the tens of thousands for a huge complex. Due to the complex nature of these valuations, they also take a lot longer to process.
As with residential finance, the panel of lenders that will assist with a commercial loan is now quite large. Many of these lenders also operate in niche segments or scenarios. Funding a commercial property can sometimes be quite complex. This scenario is where it pays to have someone well versed in finance, in your corner. Castle Mortgages are Finance brokers in Adelaide that are across the details of commercial finance. We will help find you a loan package that suits your needs and do all the leg work for you. If you have been considering purchasing a commercial property and would like to discuss your specific scenario, please get in touch, and we can have a chat.