Commercial Property - the answer?

[Oscar]

I know this Forum deals with Residential Property, but..... I have been searching the net recently looking at Sydney commercial office and retail space. Returns can be anywhere from 6 to 9%, and in many cases, tenant pays for outgoings. The idea of buying a property for say $500,000 and receiving $750/week in rent with a long lease and few outgiongs is looking mighty attractive to me right now!! I know that in general commercial property can have higher risk - but I am thinking it may be a way to break out of the herd. Residentail IP's have been very good to me over the last 5 years, but I'm thinking it may be time to branch out a little.

Anyone have similar thoughts, or experience in this area. Or maybe you can put me back on track!!!:confused:

[bundy1964]

Hi Oscar

I do commercial stuff.

LVR may hurt if it is as low as 60%, 70% is typical for a bank and 80% for a non bank lender.

Interest rates of 7.5% and up are normal for com loans.

Tenant should pay all outgoings as a seperate charge to the rent and fixed to actual cost. Tenants that pay directly have a habit of forgetting to pay the bills that belong to the property :eek:

Leases are only good if the business is making money, it is not fun trying to collect on the directors garentee.

Vacancy rates can be a killer, due dillagence should tell you what areas are hard to let in. ( bright gov money policy may affect that too! )

bundy

[geoffw]

Another killer for commercial loans can be that you may not be ablke to get Interest Only loans. The last time I enquired about a shop with a unit on top, there was a P & I loan with a 10 year period. That made repayments greater than interest payments.

[bundy1964]

Shopping around well will sort out the 10 year P&I deals from the IO options.

Given all options I would chose offset on IO, then LOC, IO and lastly P&I. IO was the best fit last loan I got fixed for 2 years.

bundy

[Oscar]

Thx Geoff and Bundy,

The higher interest rates are something I had not accounted for. These are very early days in this venture, I'll post on progress as I move forward. May take a little while as I work and live in China.

Cheers:cool:

[MJK]

I've been considering the commercial option but until tonight assumed one would be applying for a 25 yr term loan. the repayments on 10 P&I would be feirce or does one borrow for ten years with a residual?

MJK

[bundy1964]

Hi

My lender does 2 years IO with the option of repaying some back then or going for another 2 years IO, no need to pay them back at all.

They also do a 15 year P&I with a variable rate.

There has been talk of them doing a LOC and that would be good for me.

bundy