Unlike a home loan to buy a residential property, commercial loans aren’t governed by the National Consumer Credit Protection Act 2001 (NCCP Act).
That’s actually a good thing for you in that lenders can be more flexible with lending policy.
The trick is trying to figure out what the bank wants to see in an application and trying to get a fair deal.
By going to a bank directly, many borrowers lose out:
If you are in a difficult situation, then the bank will use it as an excuse to overcharge you.
If you don’t know what competitors can offer, they’ll charge as much as they can.
If you’re a loyal customer with many accounts, they think you’ll be far less likely to leave so they’ll charge you more!
This is why eFinance Home Loans is experienced to handle all of those tricky objectionable questions a customer might find hard to look .
Commercial vs. residential property
1. Long term leases
Commercial property leases usually run for longer periods than residential properties – up to and beyond 10-15 years rather than 6 to 12 months residential leases. This gives you greater certainty of rental income, plus rents tend to be reviewed annually. However, vacancy periods can be longer.
2. The impact of GST
Goods and services tax (GST) applies when you buy a commercial property, so allow an extra 10% on the property’s purchase price. As an investor, you can claim the GST back as an ‘input tax credit’ against GST charged on the property’s rent.
3. The lessee pays maintenance costs
Unlike residential property, the costs of maintenance, rates and repairs on a commercial property are paid by the lessee – not the landlord. This means more of the rent you receive goes towards your profit. However, be sure your commercial lease spells out who is responsible for the property’s ongoing expenses.
4. Some commercial properties serve a limited purpose
It can be harder to secure a lessee on a property that’s designed for a specific purpose. Opting for a property with multi-use appeal can help you attract a broader range of tenants.
5. Location is still key
As with any property investment, location plays a big role in the success of commercial property. Look for an area offering good transport links, a nearby pool of workers, and surrounding businesses that could offer support to lessees.
6. Could a commercial property deliver better rental returns?
Commercial property is usually regarded as a higher risk asset than residential property, and reflecting this, the rental return is usually higher. However, the decision between investing in residential or commercial property is a personal choice that will depend on the investor’s financial circumstances, goals and willingness to take on this higher risk investment.
There are a wide variety of commercial property loans available and most work in much the same way as a residential home loan. As an investor you can choose from a variable rate, fixed rate, combination between variable and fixed rate, principal and interest or interest-only loan, often with useful features available like fee-free additional repayments or an offset facility.
Alternatively, you may prefer a line of credit commercial mortgage. This gives you funding up to a predetermined limit and you only pay interest on the funds drawn down. Your eFinance Home Loans broker can explain how each of these loan options works.
You usually need a larger deposit (at least 20%-30% of the purchase price) to secure approval for a commercial mortgage. If you are a home owner, offering your home as collateral (security) for the loan can be a way of securing a lower rate loan or even up to 100% .
Your eFinance Home Loans Broker can help you select a commercial property loan suited to your needs and budget, giving you a clear idea of how much you can afford to borrow and the regular loan repayments