So, you have decided to bet your buck on commercial property, may be because the success and charm of the last Burgess Rawson portfolio auction convinced you that this is the direction you want to take.
Yes, the yields are definitely higher, but so are the risks and along with them higher investment costs.
Financing the purchase of a commercial property is expensive, with most sellers wanting payments upfront. This means that you generally can’t enter the market without a substantial amount.
If you are financing your purchase, then most lenders will ask for a 30% deposit or even higher, unlike residential property where 20 percent is the norm and even if you have less, you only need to buy a mortgage insurance.
Remember banks will do its own valuation and only lend against the lower of the purchase price and the valuation figure.
Also, if you are buying at an auction, don’t overbid as you could run into funding problems and in the worst scenario, cancel the deal and lose your deposit.
If you do decide to buy a vacant property, Fred Nucara, director at Melbourne-based agent, Beller Commercial, says in a report in Fairfax Media that it’s vital to investigate how many other similar properties are available. This will influence the level of demand for your office or shop and the size of the incentive you might have to offer to entice a tenant.
Also, well-known investor Melanie MacDonald in her tips and traps on investing in commercial property, says a good starting point could be to talk to a commercial agent.
“They are generally in my experience less oriented to pushing emotional buttons to make a sale than residential agents are. For them and their clients generally it is about the numbers and whether the deal stacks up so as long as you are not a tyre kicker you will probably find them quite helpful,” says Melanie.