Commercial properties can be a great investment, as it gives a higher rental income compared to a similarly-priced residential property (house or apartment which people live in).
A typical rental yield on a commercial property is 5% to 10% of the property value/purchase price. In other words, the rental income is around 5% to 10% per year of the property value/purchase price. On the other hand, a typical rental yield on a residential property is 2%-5% of the property value/purchase price.
In addition to a higher rental yield, the tenancy also tends to be for a longer duration. It’s common to see a 3-year to 10-year term on a commercial lease, compared to a 6-month to 12-month term on a residential tenancy agreement. On the flipside though, when a commercial tenant leaves, it takes longer to find a new commercial tenant compared to a residential tenant.
Commercial property loans are typically available at up to 70% LVR, in other words, the loan amount can be up to 70% of the property value. Some lenders do offer up to 80% LVR. In addition, the loan can be cross-secured by your residential property, to lower the LVR.
Popular commercial properties to invest in include office suites, retail shops, industrial warehouses, petrol stations and car washes. The more specialised the property is, the more difficult it is to re-sell quickly, and the less likely a lender will want to lend at a high LVR.
There are some low doc, lease doc or even no doc loans for commercial properties.
If you are a business owner, you can buy a commercial property for yourself, creating financial security and ensuring your landlord cannot kick you out of your own business premises. After all, your business address is a highly valuable asset and your customers already know where to find you.
Please reach out if you would like an assistance to finance your commercial property purchase.