Another pro/con (its on both sides of the coin) – is that the finance is different to normal residential lending. In terms of deposit requirements, costs and the like it can be more onerous and restrictive, but by the same virtue being a commercial loan means the way borrowing capacity, income verification etc is treated differently which can potentially free up significant borrowing capacity to keep buying property when your capacity may have been exhausted or ineligible with residential lending.

Some examples which I’ve done which would not have been possible under resi easily:

*Entrepreneur who flips businesses, significant cash but no ongoing income through a job or business – able to invest into over 4.5mil in commercial property without the lenders batting an eyelid
*$1mil cashout approved within 24 hours without any required documentation other than a completed valuation for a self employed client with 5 businesses – imagine the tomes of paperwork for a normal deal
*blend of 100% LVR of commercial + business lending for a business, allowing them to purchase a property to work from, then receive secured funding for fitout and cash flow management

Horses for courses – but I do think it’s a genuinely productive proposition to consider commercial property when nearing the end of your traditional borrowing capacity and wanting to extend that bit further.

Agreed Richard – an appropriately setup structure will not need to use a LOC these days, there are some minor times when they can be of use, but for the most part are a relic which has fallen to the way side compared to a 30 year term loan, interest only with fully transctional offset attached.

Ballarat has had some previous run ups in prices – it does come down to whether you think theres going to much further flow on from prices or whether they’re going to moderate until the next boom.

I wouldn’t rely on your friends advice on where to invest – if you’re buying an asset potentially worth hundreds of thousands of dollars it’s worth doing a weigh of areas that you can identify as having potential vs others advice.

In the end – what draws your friend/or yourself to the area?

Declining inflation, a sluggish economy – I can’t see the metrics pointing to an upshift in rates until there is a significant change in the macro data.

Is the intention to purchase this via cash, or having enough unit holders/investors to pay cash for any proposed purchase? Any group/syndicate purchase with finance can cause a nightmare for all those involved for their personal finances thereafter as each party will be liable for the entirety of joint debt in borrowing capacity calculations, whilst only being able to count their percentage of entitled rent.

The last thing you want to do is have a structure which stops any individual being able to buy another PPOR, investment property, anything in the future.

DeanCollins wrote:

@corey, I agree on a 2 year fixed….but on a 5 year fixed…..sounds like cheap insurance to me. Basically allows an investor to sleep soundly at night for at least the next 4 years and then consider selling when the fixed term period runs out in 5 years from now rather than being in a situation where you are at the whim of the banks who can raise rates at any time…..
@Bjoern, your maths is correct….if it costs you more for the offset and you don’t expect to have $30k in it then don’t get it. This said…..shop around as some banks offer it at no additional expense.

And that’s the way fixed rates should be looked at – a risk mitigant. That is completely different to the OP’s question however which is based on rate differentials, which with the latest cut alone would have seen them worse off. Use fixed rates to manage risk, not gamble for the cheapest option.

Where abouts in the Hills do you have it dtrain – Bridgewater, or further out towards Mt Barker?

Depending on where you would be looking for a PPOR vs your investment location would dictate a lot – if one market is rising much faster than the other it makes it a lot easier to choose which pathway to go down.

There’s no cut and dry best option for a structure – you’re going to need to get specific advice from financial advice, lending and tax perspectives.

Exit planning and buy/sell agreements are very common in these arrangements, particularly with farming assets. Don’t short change yourselves by relying on an internet forum (or a real estate agent) to tell you the best structure – engage with a business/agri experienced financial adviser and accountant.

If you need a recommendation feel free to send me a private message.

The value difference here is under the assumption that the fixed option is cheaper than the variable – what if rates drop further?

A lot of people would have come to the same line of thinking and chosen 4.99% fixes not that long ago instead of variable with offset, only to see themselves paying 1% more than if they went variable.

How many market commentators + banks are already talking about a further two rate decreases?

In that price bracket Adelaide is going to certainly trump Brisbane on yield. Capital growth is speculation, but we’ve already seen strong growth in Brisbane so it’s a case of asking whether you’re coming late to the party if buying there now. Adelaide has come from a point of a previous correction after it’s last boom and bouncing for a few years, it’s now seeing strong upswings in the inner suburbs and slowly flowing out to the outer areas (ie the <300k cash flow areas).

Be careful to still look for quality properties when looking in these areas – you want to avoid the temptation of trying to gain that extra 0.2% yield and taking a massive drop in quality of property, tenant and growth outlook.