One of the insights I took away from Steve’s book was that there are a wealth of different types of property investments. With this in mind I have been looking at positive cashflow commercial properties as an avenue for investment.
However I have just read an article explaining that obtaining finance for commercial properties is a lot different to obtaining finance for residential property. Higher interest rates on loans, needing LVR’s of around 60/70% (meaning bigger deposits). Less facilities on loans (i.e. no redraws).
All these factors could easily turn most of the properties I have so far identified as cash-flow-positive the other way round.
Does anybody have any practical experience of obtaining finance for commercial property that could lend some advise in this area?
Thanks…
Mark.
Hi,
Yes – commercial properties are normally a lot more cash intensive because bank’s will lend on a lower LVR to residential deals.
A possible way around this is:
1. Commercial property is more of a ‘no rules’ environment where the creative can truly go crazy. Vendor finance, 2nd mortgages, delayed settlement terms, kickbacks (er. incentives) that are properly disclosed etc. are quite common. This means that the lower LVR is not so much of a problem if you can negotiate creative terms. Of course, this isn’t something that can be done 100% of the time… you need to pick and choose your deals.
2. I tend to do IO loans on commercial properties as term loan term is usually a max of 10 years. If you did P&I then you’d probably blow yourself out of the water as your repayments > income.
To reduce risk what I do is to take a portion of each rent receipt and put it in a mortgage offset account. This means that even though I don’t make principal repayments, I’m still allocating reserves to pay off debt.
Hope this has helped,
Bye
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
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