First commercial property - 1 million, lvr?

[stevannt]

Hi all, I'm interested in making the transition from resiential to commercial property.

In your experience, If I were to find a property around 1 mil, with a good secure government tenant, eg 15 years with yields of 5.5 to 7 per cent, would a financier provide, or be more likely provide finance on the basis of 80 per cent lvr?

 

[Aaron_C]

Max LVR for reasonable rates is 75% for commercial properties.

 

[impala67]

Hi Stevannt, I'd be interested to see to see an example if you can post one.
Or, a little bit more info.

 

[stevannt]

http://www.realcommercial.com.au/property-offices-vic-leongatha-500808483

Sold for under 1 mil, not exactly a 15 year lease and a bit remote.

I'm hoping small Government Department shopfronts in urban/suburban areas may meet this criteria. Although 15 years may be a bit unrealistic, I have seen Government shopfronts remain in premises longer than that.

Aaron, would the interest rate increase to a point where most purchases become unviable?

 

[Scott No Mates]

It depends upon what you think is unviable ie negatively geared with no prospects for capital growth? This would require you to model the net returns against different interest rates (sensitivity analysis).

say purchase $1m
interest @ 6% io
borrow 75%
net return 5.5% ebit

yr 1 cf +$10k
but if interest increased to 7.5% you would have a loss of $1250

is that unviable?

 

[Aaron_C]

Aaron, would the interest rate increase to a point where most purchases become unviable?

Depends on what you're buying but I would budget for max 75%. 80% LVR promises are usually pie in the sky.

 

[Scott No Mates]

Here's a live example: http://www.realcommercial.com.au/property-offices-nsw-finley-500946235

Do your numbers.

Government tenant occupies 2/3 & real estate agent in the other suite.

 

[Peter_Tersteeg]

80% LVR is possible but a number of things need to line up properly to get there. The valuation needs to show a fairly low risk rating, as a borrow you need to be low risk, the property needs to be in a decent location and has to be of the right type.

The rates are higher too or course.

In many cases, an application will start with the lender saying they can do 80%, only for them to reduce it to 70% during the assessment process. By all means aim for 80%, but be ready to compromise to 70%.

 

[DaveM]

Here's a live example: http://www.realcommercial.com.au/property-offices-nsw-finley-500946235

Do your numbers.

Government tenant occupies 2/3 & real estate agent in the other suite.

Wow talk about deja vu... I was looking at that last night!

 

[impala67]

...when you say location - do you mean population base of the area specifically ?

I was looking at the Finley NSW - link/example yesterday too and was surprised it came up.

There was a good example In Norlane VIC for $300K at about 10% return (smaller entry level commercial) but I can't find it anymore.

What does everyone make of this one, price-wise? location-wise? (i.e., the country town)

Appreciate comments on lending for this as an investment from the brokers.

http://www.commercialrealestate.com.au/property/2010807610/for-sale/wa/kalgoorlie/development-land

 

[Aaron_C]

...when you say location - do you mean population base of the area specifically ?

Pretty much metro only i.e. no big country towns, only cities.

 

[Rolf Latham]

Appreciate comments on lending for this as an investment from the brokers.

many ( all ?) of the second tier lenders have quite restrictive conditions asto what LVR they will lend where.

Its a bit of a trade off to their lower risk non reviewable term loan products

ta

rolf

 

[impala67]

thanks guys. Good thread stevannt

 

[Scott No Mates]

Wow talk about deja vu... I was looking at that last night!

I had actually gone thru that property (before it was listed) in Feb/March last year. Unfortunately there is a lack of alternative tenants should either tenant walk.