How does a commercial property loan differ from a residential property loan?

Commercial property loans are perceived by lenders to be more risky than residential property loans. This is largely due to the fact that commercial property has higher vacancy rates. These vacancy periods can be extensive. As a result, there are some key differences between commercial and residential property loans. These include: Higher interest rates. In general, you can expect to pay higher interest for commercial property. This is because the risk to the lender is higher. Lower maximum LVRs. With residential property, you may be able to borrow 90% of even 95% of the property's value. With commercial loans, lenders offer a maximum of 70% of the property's value. This means that you will need to offer a larger deposit to qualify for the loan. Higher fees. Apart from establishment and ongoing fees, there may be other fees that add to the cost of the loan. This can include valuation fees.

Why isn't the interest rate advertised for commercial property loans?

You will often find interest rates for residential home loans widely publicised on the lender's website and marketing materials. This is not the case with commercial property loans. This is because several factors influence the rate of your commercial property loan. These include: The location of the commercial property The performance of the local property market The location of the property offered as security for the loan Your financial situation and ability to repay the money you borrow The LVR (in other words, the size of the deposit you have saved) The length of time remaining on the lease and the kind of tenants in place (this applies to commercial residential properties). Your assets and liabilities Your experience as a commercial property owner The appetite for risk will differ from lender to lender, along with lending policies. The type of commercial property finance you need will also play a role.

What kind of security can I use for a commercial property?

The kind of property you offer as security can have a big impact on the amount you'll be able to borrow. This is because of the risks attached to the security itself. Standard commercial properties are usually ideal security for your loan. These are properties that have a broad appeal to buyers, are in a good location and are zoned appropriately for their desired use. Standard commercial properties include: Offices Retail spaces Factories Warehouses Residential properties (such as a block of units) You could offer specialised commercial property as security. But the lender will need to perform a detailed valuation of the property and assess the risks associated with the property. As a result, it's likely that you'll qualify for a much lower LVR. Specialised commercial properties include: Restaurants and pubs Hotels, motels, caravan parks and other accommodation properties Childcare centres Private schools Aged care facilities Farms Shopping centres You could offer your own home as collateral. This will help you access a higher LVR and a better interest rate. But, this route comes with its risks so you should seek expert advice before committing to this.

What are the tax implications of buying commercial property?

You'll need to pay goods and services tax (GST) when buying a commercial property. Capital gains tax (CGT) is payable when you sell a property used for running a business. Speak to your accountant for tax advice tailored to your financial situation.

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