What % deposits required for commercial ?

[landlubber]

Can somebody who is familiar with comm. property advise me what sort of percentage deposits are required ? (let's say for purchases in the $0.5 mill to $2 mill range.)

Does LMI insuarnce exist is the commercial IP market ?

Thankyou,
LL

 

[grossreal]

hi landlubber
most lenders go to 70% lvr so you need to get the other 30% usually this is equity for me.
thats the bad side te good side is the cash flow to buy resi with cash short fall by growth in equity so its a balancing act.
there is no lmi as you can't get over 80% from any lender that I know as stand alone

 

[landlubber]

Thankyou Grossreal,
I had heard that you need about 30% deposit to play ...and that seems to be correct.

Thankyou very much. Your contributions are much valued.

LL

 

[Sunfish]

You may be asked for 40%. GR is higher on the food chain than you or I.

 

[Qlds007]

LMI is not available for a commercial deal however 85% High Lend is available on a good quality application.

Ideally a nice industrial / retail building with a good solid lease in place.

Rates are excellent for what you are getting.

 

[gekko_99]

In terms of serviability the banks don't seem to recognise returns from investment funds as easily as rental income from houses and they do that at a certain percentage.

How do they treat rental income on commercial property, is it better than resi and are there any rules of thumb on this? Also I imagine long term leases with government tenants would further improve this?

 

[Qlds007]

Yes 100% of the rental income is considered in serviceability especially if it a quality tenant.

 

[Sunfish]

Yes 100% of the rental income is considered in serviceability especially if it a quality tenant.

In my overflowing "shoulda" basket is the offer to buy an established U-store complex. Geez! Established, 90% occupancy and zero chance of a total collapse of income. While baulking at the 60% LVR I missed it. Bummer.

 

[Qlds007]

Always the next one.

 

[AmandaBS]

The following is a link to a document written by Cameron Perry that explains further about borrowing money for Commercial properties:


http://www.propertydivas.com.au/EAr...d55bdf7c83b82-3b6c-49ed-b68f-041d34b0d757.pdf

 

[Sunfish]

Thanks Amanda. I let a great commercial opportunity slip when this knowledge would have let me understand the difficulties and, maybe, work my way around them.

 

[crest133]

Lack of knowledge cost me when I bought the motel.
Lenders later advised me that I could've borrowed for a motel at residential rates (instead of commercial rates ) provided I used residential equity or residential property as security. It means I should've bought residential property first then used it as security for commercial property.
Live'n'learn.
cheers
crest133

 

[grossreal]

hi crest
interest that they say that.
if you have a read of sitloti you will see thats what I do and I develope but buy resi is the same.
with regards to a deposit you can buy with 30% but there are alot of lender now that will refinance at 85% on comm
and at around the 8% mark so it is very good rates.
as a rule of thumb I work on a rental say 102k per year on a 5 x 5 is worth about 2 mil in value and a couple of valuers that I deal with
work on the same for here in sydney.
Sunfish never assume anything as the saying goes *** u me but 40% deposit would be very unusual.
I like the 25% to 30% vendor finance 6 months to 12 months as the deposit
settle
and refinance at 85% method after 12 months with 5% annual increase or cpi whichever is the higher in the lease at the start.

so no money down 5% increase cuts down your money into around 10% but the increased rent takes the value up by( in the case above by about 150k so the money in is 0)
and at 8% cost of funds with a net return on lease of say 9.5%(and thats the aim) thats not bad.
heres is a few figures
102k income on a 5 x 5
at 8% return
cost 1.275 mil cost
70% is 892.5k with 30% vendor finance back
interest at 8% 71.4k (comm interest)
12 months later
rent/lease 107.1k (5% increase)
107.5k / 5% value 2.145mil
85% of val as its a refinance is 1.82 mil
repay 382.5k( vendor finance) from the 928.5 (1.82-892.5k)
and you have 545.7k in your pocket.
throw 271k back into the loan and take out 274k
and keep paying the short fall of interest to lease and in 5 years the property in neutral
in another 5 years
the lease is 158.2k( 5% increases)
the value is 3.16mil
85% lend is 2.68 mil (same lender or better rate but try to stay with the same lender)
and the redraw is 869.3k you are at year 6 of a 10 year lease and at year 9 you sign up a new lease with the same company if possibleand at this stage you have over 50% of the original cost in your pocket/ account and still the property.and the money in your pocket you use on high growth resi property but thats another story.
so in answer to the post very little deposit is required.

I did read the link with regards to lending and I do agree with most
the one market that was not mentioned and should be
as it is bigger then most banks and is a source of commercial funds alot more then both banks and private lender
is the equity lenders or equity market and they buy money on the open market( or leverage) and secure it by there equity and on lend to commercial borrowers.
this maybe out of the realm of most borrowers but must be mentioned as this type of lender is the guys that are looking at buying qantas and news ltd I think or channel 10.
the link is very good information but comm lending is alot more vast then resi lending

 

[crest133]

I think there is some great info in there Grossreal because I'm still having trouble piecing it together on third read, call me slow on a new (to me) scenario, so I'm going to work on it after my second morning coffee and get back to you.

BTW - can you mention who lends at 8.00% commercial ?

Last time I spoke to them, BankWest were keen to lend on Motels, up to 85% LVR as well, very encouraging. Some banks just stay in them when they're away from home, pay the accomm bills, but haven't "discovered" them yet. Maybe I should charge bankers 130% tariff to get their attention.

Thanks & cheers
crest133

 

[APerry]

BTW - can you mention who lends at 8.00% commercial ?

For larger deals pretty much every lender will go beow 8%, if the deal is smaller probably Bank West would be your best bet.

Regards
Alistair

 

[crest133]

Oooooh thank you, St George has crept mine up to 8.42% , but the loan has been paid down a fair way so obviously I need to get in much deeper debt to get a better rate.
I think I can do that.
Thanks
crest133