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Over the years, commercial property has become the most popular investment option among Australian investors and businesses.

While others choose the safer strategy and invest in residential properties, the benefits of commercial investments far outweigh the risks. So why should you buy a commercial property?

If you want to know more about investing in commercial property, you’re in the right place. Read on to find out why.

Why are people buying into commercial real estate?

Despite the considerable risks of commercial properties, people still invest in them because of the following benefits:

  • Longer lease terms: Residential property loans can go up to 12 months, while commercial properties can cover anywhere from two (2) to ten (10) years.
  • Options for smaller investments: Invest in smaller commercial properties with relatively lower risks and smaller loan deposits.
  • Goods and Services Tax Claim: While you need to make GST payments for commercial properties, you can eventually take them back as an input tax credit.
  • Get away with outgoings and rates: Commercial tenants cover all outgoings incurred in the property, such as corporate fees and repair costs.
  • High revenue and rental returns: Commercial properties can be risky investments, but you also get significantly higher rental returns and secure a robust cash flow.

If you’re interested in venturing into commercial property investment, we recommend weighing the risks and making well-researched decisions before buying your first property.

Risks When Acquiring Commercial Property

Many people consider investing in commercial properties as a high-risk venture mainly because of the following:

Vulnerable to economic fluctuations

A slight drop in the location’s economic condition can significantly affect your commercial property’s demand. Finding the right timing is crucial since you need to leverage the best economic conditions.

Furthermore, the property’s value can also decline if it remains tenant-free for a long time or has an existing lease that’s close to its end of term.

Finding the right tenant may take time

You can’t guarantee that you’ll have tenants lining up on your property. While commercial leases are long-term agreements, it may take considerable time to find a capable tenant for your property.

Infrastructure changes

Regardless of how well your commercial property performs, you’re still dependent on surrounding infrastructures and foot traffic. Drastic changes in local infrastructure can drive your potential tenants away, especially if you have an aging property.

Despite all the risks involved, you can maximise your commercial property’s value and potential by seeking professional advice and making data-driven decisions.

What are the different loan features?

Most banks and non-bank lenders offer various loan features and commercial property loans under a broad price range. With the right lender, you can apply for the following commercial loans:

  • Bad credit commercial loan: Get approved for a loan with a bad credit history. Keep in mind that this feature will incur higher interest rates and larger loan deposits.
  • Low doc commercial loan: If you don’t have enough proof of income to back up your application, a low doc option is a smart choice.
  • Lease doc loan: If you have a security property that generates rental income, you can get approved for a lease doc commercial loan.
  • No doc commercial loan: If you don’t have any financial statement for your application, you can apply for a no doc commercial loan, albeit at higher rates and stricter policies.
  • Franchise loans: If you’re interested in investing in a franchise establishment, look for lenders and banks who accept franchise loans at flexible rates.
  • Specialised commercial loans: Apply for a specialised commercial property loan if you want to invest in child/aged care facilities or hotels, among other options.

Our specialist mortgage brokers at Plan A Mortgage can help you find the ideal lender and apply for competitive rates. Call us at 1300 052 055 to find out more.

How much loan can I apply for?

Banks can offer loans to value ratios from 70% to 80%, depending on your risk profile and application strength.

  • 70% loan to value ratio for a commercial loan amounting to $5 million.
  • 75% LVR for commercial loans about $2 million.
  • 80% LVR for commercial loans around $1 million.
  • 100% LVR for commercial loans with residential property as loan security (case to case basis).

Keep in mind that lenders will evaluate commercial loans of larger amounts (more than $4-$5 million) on a case-to-case basis. For that, a specialist mortgage broker can help you negotiate your rates.

How can I strengthen my commercial loan application?

More often than not, banks and non-bank lenders follow their risk indexes to compare your loan application’s strength. These indexes include the following factors:

  • The present and future condition of the local property demands
  • The property’s structural and aesthetic condition, as well as its location
  • Your financial statements and ability to meet mortgage repayments
  • Your financial record and portfolio on commercial investments and management experience
  • Commercial loan term you’re applying for and lease length

Keep in mind that the said factors are only general points that most banks consider. Feel free to speak with our commercial mortgage brokers to discuss other factors relevant to your desired lender and loan rate.o

Some points to consider before applying for commercial loans

Failing to plan is planning to fail. To ensure you won’t lose your capital after securing the loan, consider the following questions before purchasing a commercial property:

Can you afford the property?

Remember that while you’re paying the loan for the long term, make sure that you have enough equity to pay off the property after the given period.

How much do you know about the area?

You need your property to generate significant rental income. That’s why you need to consider the location and surrounding infrastructure.

You may feel lucky securing a commercial property in the outskirts for cheap. But without enough traffic and infrastructure, you may end up losing money.

How familiar are you with your tenants?

Consider your tenant’s capability to pay the rent for a long time. We recommend looking for corporate or government tenants to guarantee your long-term rental income.

What commercial lending features do you most need?

If you’re hogging a ton of commercial loan features, you may have a few that you’ll never use. To prevent unwanted expenses, choose the best features that will bring you to your goal.

Will your lender accept your loan security property?

If you don’t use reliable loan security, your lender may end up rejecting your loan application. That said, avoid using specialised properties as loan security and consider those located in excellent residential/commercial areas.

After pondering these questions, speak with a financial advisor to adjust your commercial loan needs and avoid making costly mistakes in the long run.

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Seeking help from a mortgage broker will improve your suit when investing in commercial properties.

Our mortgage brokers at Plan A Mortgage have years of industry exposure and experience in credit. They know several banks and lenders who will approve loan applications under competitive rates and ideal loan terms.

Making time-tested and data-driven decisions when applying for commercial loans can go a long way and save you a lot of time and money.

Discuss your loan application and needs with us at 1300 052 055 or complete our contact form to discover if you can qualify for a commercial loan today!

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