Page 73 - Smart Money

Chapter 3

because you are not earning anything. The bank is not going to lend you
the money.

If you want to buy a commercial property, the deposit required is generally
30%. There is no mortgage insurance, which is a good thing, but you
need a bigger deposit. If the property is a storage unit or something that
may be hard to resell, then the bank will probably force you to have an
even bigger deposit, because it is not something that they can easily sell
if you default on your mortgage.

On a commercial lease, you pay to get the office set up the way you want
it. If you then move out because your lease is up, you’ve got to put it back
to the way it was. You might have to paint the walls, make sure the carpet
is good, take out walls etc. if the owner wants it that way. The lease is
a little different also because it’s generally a five-year term with a five-
year option. That means the tenant leases it for five years and then has an
option to stay another five years. In a residential situation, it is generally
a six- or twelve-month lease. There is no extra option. Basically, you may
have to re-sign another lease and there is no obligation for the owner
to renew your lease or give you that property for another 12 months.
Plus, with a commercial lease, all the outgoings, such as strata fees, are
covered by the tenant, not the owner of the property, so that is another
good reason to buy commercial property.
However, commercial property is just not as sought after as residential
property. If you buy a commercial property, you need to make sure that
it can easily be resold if you want to sell it. It can be harder to sell a
commercial property than a residential property. A commercial real
estate agent might disagree with me, but that is my thought.

Commercial finance is very varied, so while one bank might not be
willing to lend against a property in a particular suburb, another bank
might be quite happy to do so. For instance, development properties are
quite interesting to look at. At the moment, Westpac might have a good
appetite for development finance, but Suncorp don’t have an appetite for
it at all. So it is a good idea to talk to a commercial broker to find out
what sort of appetite the banks currently have for commercial business.

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