Naritas Commercial Finance
If you're considering a commercial loan, compare the options from Naritas Finance.
- Apply in less than 30 minutes.
- Regulated by ASIC
- Get access to 24/7 Customer Support
There are fundamental differences between an investment loan that is used to purchase commercial property and a loan that is suited to the purchase of a residential property.
Find out how the structure of these loans differ and what you should keep in mind when tossing up between buying a commercial property and buying a residential property.
If you're considering a commercial loan, compare the options from Naritas Finance.
One primary difference between commercial and residential investment mortgages is the property type (that is, whether you are acquiring a business or residential property).
For example, if you take out a commercial loan, you can potentially purchase a business property such as retail space, a child care facility, restaurant, hotel, medical centre, or even a digital billboard (if you want to get creative).
After entering your details a mortgage broker from Aussie will call you. They will discuss your situation and help you find a suitable loan.
The Adviser’s number 1 placed mortgage broker 8 years running (2013-2020)
On the other hand, if you’re buying residential property, you are generally limited to purchasing a house, apartment or unit.
Most commercial property loans are similar to residential investment loans. You can select from a variable, fixed or split rate, and you can also choose between making principal and interest or interest-only repayments. (Most investors prefer interest-only repayments due to the potential tax benefits.)
However, the type of home loan product (and features) that are suited for a commercial or residential purchase are different.
For instance, you may want to consider a line-of-credit commercial home loan or a self-managed super fund (SMSF) home loan for commercial property so you have greater flexibility to access your funds (due to the higher expense of upgrades for commercial real estate compared to residential real estate).
On the other hand, if you have bad credit history or limited savings, you may have a better chance of qualifying for a residential investment loan. You may consider an introductory rate home loan or a low doc home loan depending on your ability to access finance. Based on your strategy, you may need to find an interest-only investment loan with a 100% offset account to reap tax benefits.
Depending on your financial position and the lender’s individual policy, most banks will lend up to 60-70% LVR for a commercial property loan. The amount you can borrow will also depend on the potential rent or yield that can be generated from the property. As a result, you typically need a 30% deposit to gain approval for a commercial home loan. Due to the higher purchasing cost of commercial property, finance for a commercial loan is less accessible compared to a residential investment loan.
However, the LVR is generally higher for residential home loans, with most lenders allowing you to borrow between 90-95% of the property value (depending on your credit history and your serviceability potential). If you are a blue-chip borrower and you can borrow with 90-95% LVR, then you may only need to come up with 5%-10% deposit to qualify.
It’s advised that you complete a 20% deposit for a full documentation loan in order to avoid paying lenders mortgage insurance (LMI).
As a rule of thumb, interest rates may be higher for commercial loans compared to residential home loans due to the inherent risk of commercial loans (such as longer untenanted periods).
To further offset the risk of commercial loans, fees are generally higher for commercial loans than residential loans.
While your ability to qualify for a commercial or residential loan will depend on the lender’s eligibility criteria, banks normally impose stricter criteria for commercial property loans (as reflected in lower loan-to-value ratios and higher interest rates). This is due to the fact that a commercial property may be more difficult to sell in the event that you default on the loan.
As a result, the valuation of a commercial property is more detailed compared to the valuation of a residential property, and you may be required to provide more documentation than you would with a residential investment loan.
Investing in commercial real estate differs significantly to investing in residential property. While your role as an investor is similar – you rent out the property and receive rental income from the tenant – there are various implications of both residential and commercial property that you should keep in mind.
A commercial property generally offers a higher return on investment (ROI) compared to a residential property. Data from CoreLogic (2015) indicates that the average rental yield for a commercial property, such as a warehouse, is around 8%-10%, whereas the return for a residential property, such as a house, averages around 3.5%.
The average lease period for a commercial property is 3-10 years (sometimes as long as 15 years) whereas the lease period for a residential tenant may be just 6-12 months with no guarantee of renewal. The difference in lease periods is due to the fact that commercial tenants tend to stay in the property for longer, as they may be more inclined to make improvements to the property.
For instance, a commercial tenant may invest $25,000 to renovate the space for their business, whereas a residential tenant is less likely to invest money in the property (especially if it’s an apartment with strata by-laws).
While untenanted periods are a risk for both commercial and residential properties, this risk is more adverse for commercial property. This is due to the fact that tenants tend to be more hesitant, as they could be locked in for 5-10 years.
Most banks are conservative about lending for commercial properties because the borrower will have to cover expenses during untenanted periods.
Renovating a commercial property such as a retail space or office may be relatively expensive compared to renovating a residential property. This is because upgrades for a commercial property may require a greater scope of work for a larger area and include major tasks such as the removal of asbestos or changing the fit-out.
Upgrades for residential property usually involve smaller and less expensive jobs such as painting or installing new appliances.
Take advantage of a low-fee mortgage with a special interest rate of just 2.59% p.a. and a 2.59% p.a. comparison rate.
Get a low interest rate loan with no ongoing fees. Plus you can make extra repayments and free redraw online.
Lock in a competitive rate for owner occupiers for two years. Comes with a 100% offset account.
Get one free online redraw per month and pay no ongoing fees. Application fees are waived for loans above $150,000. Eligible refinancers can receive a cashback of $2,000 or more.
finder.com.au is one of Australia's leading comparison websites. We compare from a wide set of banks, insurers and product issuers. We value our editorial independence and follow editorial guidelines.
finder.com.au has access to track details from the product issuers listed on our sites. Although we provide information on the products offered by a wide range of issuers, we don't cover every available product or service.
Please note that the information published on our site should not be construed as personal advice and does not consider your personal needs and circumstances. While our site will provide you with factual information and general advice to help you make better decisions, it isn't a substitute for professional advice. You should consider whether the products or services featured on our site are appropriate for your needs. If you're unsure about anything, seek professional advice before you apply for any product or commit to any plan.
Products marked as 'Promoted' or 'Advertisement' are prominently displayed either as a result of a commercial advertising arrangement or to highlight a particular product, provider or feature. Finder may receive remuneration from the Provider if you click on the related link, purchase or enquire about the product. Finder's decision to show a 'promoted' product is neither a recommendation that the product is appropriate for you nor an indication that the product is the best in its category. We encourage you to use the tools and information we provide to compare your options.
Where our site links to particular products or displays 'Go to site' buttons, we may receive a commission, referral fee or payment when you click on those buttons or apply for a product. You can learn more about how we make money here.
When products are grouped in a table or list, the order in which they are initially sorted may be influenced by a range of factors including price, fees and discounts; commercial partnerships; product features; and brand popularity. We provide tools so you can sort and filter these lists to highlight features that matter to you.
We try to take an open and transparent approach and provide a broad-based comparison service. However, you should be aware that while we are an independently owned service, our comparison service does not include all providers or all products available in the market.
Some product issuers may provide products or offer services through multiple brands, associated companies or different labelling arrangements. This can make it difficult for consumers to compare alternatives or identify the companies behind the products. However, we aim to provide information to enable consumers to understand these issues.
Providing or obtaining an estimated insurance quote through us does not guarantee you can get the insurance. Acceptance by insurance companies is based on things like occupation, health and lifestyle. By providing you with the ability to apply for a credit card or loan, we are not guaranteeing that your application will be approved. Your application for credit products is subject to the Provider's terms and conditions as well as their application and lending criteria.