Thinking about buying commercial property in WA? Emma Oliver Beagl Buyer’s Agent and Finance Broker, Brad Smith from Baseline Finance answer key questions about deposits, loans, tenants, returns and more.
1. Is it harder to get a loan for a commercial property than a home?
Generally speaking, there is a higher level of due diligence undertaken with a commercial purchase, and it starts with the purpose of the loan. Is it an investment or for a business to relocate into? The answer to that question sends you down two very different paths, with vastly different information requirements and assessment criteria.
2. How much deposit is usually needed to buy a commercial property?
Most often, at least 20%. However, there are exceptions, and a lot of our clients lean on existing equity held in other properties.
3. Does it matter if you're self-employed when applying for a commercial property loan?
Not really. The vast majority of commercial property owners we deal with are self-employed, so lenders are very accustomed to assessing business owners.
4. Does buying through a business or trust change how the loan works?
Not for the purposes of raising finance. The tax and accounting considerations are different, but from a finance perspective, both are acceptable. The variables become incorporating recourse from interested parties to the transaction, which differs between the two options.
5. If the property already has a tenant, does that affect the loan approval?
It strengthens the investment case substantially and provides another income stream that can be used to service any debts used to fund the purchase. Other important considerations include the strength of the tenant, the weighted average lease expiry period, and whether the income is gross or net.
6. What kind of return can I expect from a commercial property in WA?
This is very asset-class specific, but as a broad rule of thumb, returns between 5.5% and 6.5% are common for most commercial properties. Some returns are higher, but they generally introduce higher risks.
7. Which types of commercial property are performing best right now?
Industrial property and warehouses have been the darling for the last number of years, on the back of e-commerce growth and the strength of business growth linked to mining activity. There has recently been a small resurgence in office space, too.
8. Is now a good time to buy commercial property in WA?
The current market is very competitive, and it pays to have good advisors in your corner. Buying any asset, like property or shares, requires a long-term view and an investment horizon of preferably 10 years or more. Good opportunities exist in all markets.
9. What should I look for to make sure a commercial property is a good investment?
This depends on the purpose of the purchase, whether it is for occupation or investment. If it's an investment, ideally you want quality tenants, strong lease terms, a growing location with strong transport links, ongoing tenant demand, strong land and building fundamentals, minimal ongoing CAPEX and a strong financial return. Bonus points for any ability to enhance returns by adding value.
If it's to occupy, a lot of the same factors are important, but access to customers, a property that is "fit for purpose", and a business that can comfortably afford the repayments are also critical.
Brad Smith
Finance Broker - Baseline Finance