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!!!

 

[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

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

 

[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