What are the differencces in buying residential property to commercial property? I am looking at buying a inner city cafe because of the low price and reasonably high net profit. I am thinking of doing this and using the profit to pay off my IP, or use it to purchase another IP.
One big difference will be the ease of finance.
Still get 95% on a standalone residential investment property (or 100% with additional security) whereas for a Commercial security such as a cafe would be lucky to get 60% if it is freehold and 0% if leasehold.
Even if it is showing suitable figures you wouldnt pay off your IP but put the funds into an offset account linked to your IP.
Richard Taylor | Australia's leading private lender
And also the interest rates is >8%+..
Low gear LVR combined with high interest rates.. make it unattractive unless you are a sophiscated investorRichard
What do u mean by leasehold? strata titled CP?
Thanks
No GOM many business are sold leasehold especially cafe's and sold merely on the figures they generate, goodwill etc etc.
Lenders are great lovers of something that will diminish in value as time goes by.
Richard Taylor | Australia's leading private lender
What exactly are you buying Lowy? To answer GoM, the leasehold is only buying the 'business' of the cafe which operates under a lease to the owner ie the business owner works (sells coffee/food etc), runs the business & pays rent/outgoings to the building owner – end of commitment at the end of the lease (hence 0 residual value at the end of the lease).
If you are buying freehold including fixtures & fittings, then you may find someone to lease the shop (or yourself as a different entity) to run the 'business'.
The cafe comes complete with staff and manager, and I would just be a silent owner, accepting the profit as it comes in (well thats how I envisage it, probably completely different). Its the business I am looking at. I dont believe it is leasehold, I believe its freehold, and if I have got this correct, the shop and everything in it. I am looking at this as just an extra source of income to enable me to pay off PPOR or more IP's. Basically it was $100k +/- net profit, which I reckon could dump strait on PPOR loan.
Does all this sound feasible? Obviously due dilligence must be done, and the books to be scrutinised before anything happens but for a small outlay(as far as investing goes) I think this is a bargain.
Any thoughts??
Thanks for the info…
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