What would you do !!!

G'day mate,

Sounds like you've made a great start with your investment portfolio. I have also been researching commercial property investing. As a general rule the differences to residential property is that the tenant pays the water and council rates. Also, banks will require a minimum 30% deposit on a commercial loan. You should look towards a cash on cash return of at least 10%. You can calculate the cash on cash return by the following"

annual rental income – annual loan repayments = annual net cash flow

Then divide this figure by the initial cash needed to purchase the property (deposit, loan establishment fee etc) x 100

I am looking for a property that has an existing and well established tenant that has a long-term lease in place. Also, ensure that the lease is indexed to the CPI.

Hope this helps!

Andyfev

Commercial investment is a totally different kettle of fish to residential and may be more risky in certain situations. Generally, a bank will require at least a 25% equity for a commercial venture before they even consider approving the loan.

Calculate your equity in all your investments and the % exposure to the banks first and make sure you are able to service the loans if you do decide to go ahead.

CPI stands for Consumer Price Index and is an index used by the RBA to measure and gauge the rate of inflation. It is made up of a “basket of goods” which may include the usual everyday stuff that we buy such as milk, bread, petrol etc etc. so that when prices change, the index will record its changes to produce an overall, moderated figure.

A lease which is indexed to the CPI has both pros and cons. If the CPI is low, your rental review / increase will also be low. Australia’s CPI has been hovering around 2 – 3%. To me, this sort of rental increase is not worth the risk and return. Depending on the location and type of business for the commercial property, I would want at least 8-10% rental increase to justify the risk.

Hope this helps!

I would rather not like to go for commercial investing. According to me, it is more messed up. But I would also like to know how does it differ to resdential in terms of loans, I have the same question.