Commercial Property questions

From: Adam H.


Gday

I am a student who lives at home still and has no propertys. I just need a few questions answered so i can think about it more and plan better. What i would like to do when i finish uni is save up a deposit and get a commercial property that is either neutrally geared early on(ie first year or 2) then positive geared, or positively geared from day 1. What are the banks/financial institutions lending policies on commercial property? I have read that for residential property you can get a loan for 80% of the property value without mortgage insurance but with commercial propertys they only lend to 70% maximum. Is this true? Also can you get mortgage insurance on commercial property loans or only residential? If you can whats the maximum LVR level? And regarding GST, i have noticed that most commercial properties are gst exclusive. Does this mean that if i am an individual i pay the 10% then get none back? If i form my own company i get the 10% back from the ATO? Also if i form a compony with the goal of accumulating property will i find it much harder to get finance? Will the LVR limit be less, and will the interest rate be more? This is my first post. Be gentle. Thanks.

Pele.
 
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Reply: 1
From: Dale Gatherum-Goss


Hi


>I am a student who lives at
>home still and has no
>propertys. I just need a few
>questions answered so i can
>think about it more and plan
>better. What i would like to
>do when i finish uni is save
>up a deposit and get a
>commercial property that is
>either neutrally geared early
>on(ie first year or 2) then
>positive geared, or positively
>geared from day 1. What are
>the banks/financial
>institutions lending policies
>on commercial property? I have
>read that for residential
>property you can get a loan
>for 80% of the property value
>without mortgage insurance but
>with commercial propertys they
>only lend to 70% maximum. Is
>this true?


As a rule of thumb, I have found that banks do like commercial property loans to be 70% or less of the value of the property. They will go higher though and it may mean finding the right bank which is where a good mortgage broker like Medine, Russell, Rolf & Kellie (did I miss anyone???) come in to play.


Also can you get
>mortgage insurance on
>commercial property loans or
>only residential? If you can
>whats the maximum LVR level?


I will leave this for the finance guru's to answer.


>And regarding GST, i have
>noticed that most commercial
>properties are gst exclusive.
>Does this mean that if i am an
>individual i pay the 10% then
>get none back?


OK, there are many, many issues involved here, so, please bear with me.

If the property has tenants, it is more than likely sold as a "going concern" which means that there is no GST charged to you as the purchaser. This will be identified in the contract and something that your solicitor will discuss with you.

As for the rent, it will have GST if your income from Commercial properties is more than $50,000 pa. Otherwise, no you can just have an ABN and not be registered for GST.


If i form my
>own company i get the 10% back
>from the ATO?


This is not absolutely necessary.


Also if i form a
>compony with the goal of
>accumulating property will i
>find it much harder to get
>finance? Will the LVR limit be
>less, and will the interest
>rate be more?


Again, a question better answered by one of the finance people.


This is myfirst post. Be gentle. Thanks.


You did well and good luck with this idea.


>
>Pele.

Dale
 
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Reply: 2
From: Geoff Whitfield


Adam,

I am in the process of buying a small block (country).

The mortgage insurers wouldn't touch me, as a block is regarded by them as commercial, even though the bank regarded it as residential. And they were looking at nothing over 70% LVR.

Last year I looked at a combined commercial/residential property. Not only was Interest only not an option- the loan was for 10 years- at the end of 10 years, the loan had to be paid off. That made for some very high payments, and made it not worth while for me.

You may have different experiences, but they're questions worth asking to your lender or broker.

Geoff
 
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Reply: 3
From: Rolf Latham


Hi Adam

This is not advice, just a comment :eek:)

Commercial property is NOT for new players in the property market.

Why ?

Max LVRs generally 70 %, sometimes 75 % if mixed commercial residential. Compare that to up to 95 % Lvr.

This might sound irrelevant but lets look at the numbers.

300 k property ignoring gov costs for a moment, and assuming the capital growth is the same, and even that the interest rates is the same.

If residential you require 15 000 deposit. If commercial you require 90 000 deposit

Now some will say ahh the rtns with commercial are 10 % and residential is 5 %.

Return on your funds with resi model is 100 % per annum. with commercial model it is 33 % per annum.

As I said, just my rantings but the numbers sort of make sense, They make even more sense when your commercial property is empty for 6 months in a recesssion.

I know many that commercial has worked well for.

Ta

Rolf
 
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Reply: 3.1
From: Jerry Maguire


good on ya rolf u just say the truth of it in commercial properties...
but a lot of them can't handle the truth...
 
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Reply: 3.1.1
From: Jeremy Laws


I skimmed through this thread and so far I dont think anyone has mentioned vacancies. A friend of mine is a commercial developer after being an agent for 15 years in purely commercial. He has built 6 commercial properties in the last 4 years. These are in a booming area of Sydney and were tailor made for current demand. One was pre sold; ie the tennant detailed the requirements up front and paid for the fit out. This was obviously tenanted from day one. His next one (built immediately after) had a 9 month vacancy and when it was occupied had 6 months free rental built in. He is happy as it is in the hands of a very large multi national. Of his next 4, 2 now tenanted, 1 with 2 years free. One with 6 months free. One has been constantly vandalised and one is still empty. These are premium properties worth about $1.5m each. Seven residential properties were sold to cover the losses, and his bankers have allowed interest to accrue on the capital until repayments can be made later. He is now in a 'money in the bank' position with the light at the end of the tunnel growing very quickly, but I would urge you to look at the numbers very very carefully. This guy had pretty much calculated this type of delay and even he was surprised. Not for the faint hearted!
 
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