Am looking for feedback on commercial loans for purchasing a currently tenanted commercial property with a solid tenant, long lease, ideal location, etc. It is my first one.
Aside from the obvious factors such as liquidity versus capital gain (if there is any in commercial property), what are the advantages and disadvantages of a commercial loan that is:
Interest Only (still trying to get my head around interest only)
Principal & Interest
Short term (5 years)
Long term (10-15 years)
My accountant has advised me of the tax implications and benefits.
Many thanks.TheFinanceShopParticipant@thefinanceshopJoin Date: 2012Post Count: 1,271
1. LVR – big difference as depending on the property type Lender A may lend 50% LVR whereas Lender B will give you 75%.
2. Features like offset (yes you can get an offset even with a commercial loan)
3. Fees (this the variation between lenders could vary quite a bit)
Thank you Elite Property FinanceRhys AdamsParticipant@rhysadamsJoin Date: 2014Post Count: 14
A typical loan for commercial property will be short term, say three years. This is driven by lender’s cost of funds with longer term capital being more expensive. As an example, we obtained quotes recently for a client for a 3 or 5 year facilty which were priced with a 0.47% spread between them.
Loan term can also be tied to the lease expiry profile but given your comment about lease term shouldn’t be an issue.
There are lenders that have “off the shelf” style loans with 15 to 25 year terms but I find we can obtain better pricing and loan terms on shorter term commercial bill facilities.
Interest Only is obviously better from a cash flow perspective but given the 8%+ yield on commercial property compared to circa 5% interest rates you’ll find your investment to be positively geared even on a Principal & Interest basis.
I could go on and on but let me know if there are any more specific questions that I can answer for you.
Thanks for the info Rhys – it appears that I won’t be purchasing the property now but I appreciate the time you have taken for giving the feedback.king-coParticipant@king-coJoin Date: 2005Post Count: 13
I currently pay 4.84% on $945K (65% lvr) which is based on the bank bill swap rate of about 2.8% + a line margin which the bank calculates based on your risk profile which in my case is about 2%.
This is on a 3 month rolling period so the rate can be adjusted every 3 months based on bbsy and I pay a fee every 3 months for the rest, I think of about $300.