Is buying commercial differ from residential properties?

[bumblegoodie]

Hello,

May i ask what is the difference in buying commercial property?

1. is lending different?
2. can i use my residential equity to buy?
3. what should i look out for? i.e contracts, etc?

thanks
BG

 

[Terry_w]

Hello,

May i ask what is the difference in buying commercial property?

1. is lending different?
2. can i use my residential equity to buy?
3. what should i look out for? i.e contracts, etc?

thanks
BG

1. yes, very
2. yes
3. heaps of things - especially in regards to existing leases.

 

[bumblegoodie]

thanks Terry.

Iam looking at buying a commercial property with "Vacant possession"

so there will not be any existing lease arrangement.

could you please advise what to look for in particular?

 

[DaveM]

Is this to owner occupy or investment?

For investment, strength of lease affects the loan, so a long term + options adds a lot. And you generally dont have GST payable.

 

[Shahin_Afarin]

Heaps of things to consider - too many to list.

If you are looking to purchase a commercial property with vacant possession then you will restrict your lender selection. Most lenders will want to see a lease (expired doesn't count) in place.

There are ways you can get around it but again you are limiting your lender selection.

Also make sure that the professionals you are dealing with have experience with commercial transactions, i.e. solicitors, bankers, brokers, etc.

 

[Shahin_Afarin]

One other huge point is the loan terms and interest only strategies associated with commercial properties - it doesn't work in the same fashion as residential loans and strategies.

 

[bumblegoodie]

Thanks Shahin.

I have equity in residential offset to cover 50% of the sale price.

Is it hard to get the remaining 50%? As the currently not tenanted?

 

[Shahin_Afarin]

Thanks Shahin.

I have equity in residential offset to cover 50% of the sale price.

Is it hard to get the remaining 50%? As the currently not tenanted?

I have client that literally have millions on dollars in cash but they still choose to borrow when they can. Always borrow as much as you can and leave the cash liquid and in an offset. You will never know when your situation will change and you can't borrow or the lender will turn off their proverbial finance tap.

Yes even at 50% some lenders will simply not take on commercial property as security without a lease in place. They wont even accept expired lease.

Not saying its not doable but its harder to finance in which case there is added room to negotiate.

 

[Darren_SPF]

Hello,

May i ask what is the difference in buying commercial property?

1. is lending different?
2. can i use my residential equity to buy?
3. what should i look out for? i.e contracts, etc?

thanks
BG

Hi Bumblgoodie,

1. Yes lending structures are different, you will require strong securities or guarantees. Mainly because commercial property is valued both by productivity and yield. Which means it can drastically change in value every few years.

2. You can, this is highly risky though, if you are looking to own and occupy with your own business then it would be prudent, if you are looking to invest I would be wary about tying up your PPOR.

3. Building inspection, you'll need to check if it complies with council requirements such as fire certification, structural integrity and so on. You'll want all services inspected - including air-conditioning, as these can be high cost items. Environmental contamination or threat of migrating contamination from neighbours can be an issue if you're looking at industrial sites. You'll want an experienced lawyer to go over the contract for sale. When it comes to leases there are lots of rules surrounding retail and industrial.

Regards,
Darren
www.spf.com.au