Commercial property

[Freedom2Member@freedom2Join Date: 2003Post Count: 2]

August 3, 2003 - 5:01 am

Hello Everyone

I would like to hear from those of you that have commercial property and how you perceive this investment v’s residential.

Returns, growth, security, etc.

Any thoughts?

Thanks
Freedom

[davo70Member@davo70Join Date: 2003Post Count: 56]

August 4, 2003 - 2:28 am

I have been researching commercial property for a while and there are risks associated with them that are present for residential but seem to make the risk higher.

IE: If the tenant leaves the building it can take months to find another tenant.
If you buy into an area that is in decline then you run the same risk but can also may not be able to find a buyer if you choose to sell.
You need to be very clear on what it is you are responsible for and be very careful to check the lease (have a solcitior look it over, there can be some nasty surprises in their if you take over a property already tenanted)

Talk to an accountant before taking the leap and mkae sure the accountant is savy with commercial property.

You need to have a reasonable deposit (if using property) as most banks will require at least 25-30%. Don’t forget to factor in the costs as well. These tend to be the same as normal residential property.
I hope this helps. If anyone reads this and I have forgotten anything please feel free to add.

Thanks
Davo70

[NessieMember@nessieJoin Date: 2001Post Count: 73]

August 4, 2003 - 2:46 am

Hi Freedom

Banks/Financiers will only lend 70% LVR on commercial property plus the term is usually only for 10 years.(Residential is 80% LVR and 25 or 30 year terms) So this means a much greater monthly loan repayment.
Also they like at least a 5 year lease with an option. That is a 5 year term with the option of a further 5 year term.
There are lots of commercial properties available (a lot without tenants) but getting one which will be acceptable to your Bank/Financier is usually the hold back factor. Speak to them and find out what their lending criteria is with respect to Commercial property and then you can find the property that will fit into this.

I believe that you should buy commercial properties where you shop yourself. That way you know what is happening in the local area. You get to know what businesses are long term businesses. Majority of small businesses don’t survive more than 5 years.
When shopping I always ask questions like “how long has this shop been here” etc. It is amazing what you can find out about that particular show and the area in general. Location is important. Small shopping strips near the large shopping centres are, I believe, not a good investment. But a small shopping strip that is further away are better. They service the needs of the local houses, are usually a good investment and get long term tenants.

Hope this helps.

Cheers
Nessie