Hi all,
My wife and i are starting on our investment journey and not sure which would be more profitable. Have been looking at Residential but have also discussed Commercial properties. We have approx $400-50k equity in our family home and gross combined income of $140k.
What are your thoughts.Investment in commercial property is not everyone's cup of tea. Firstly, vacancy periods are generally much longer than with residential property (ie can be 12-18 months) as it varies with the economy rather than other factors, so you must be able to cope with repayments over these periods. Banks will only lend 60-70% unlike residential (but they probably will lend more if you use your house as security – many arguments for/against). Capital gains are generally lower than residential property.
Having said that, the returns are generally much greater (which reflects the greater risk that you take with this investment class).
Hi Brian
Firstly welcome to the forum and I hope you enjoy your time with us.
As SNM as said the crux of the matter away from returns and yields is that lenders are very conservative as to what lvr they will loan for a Commercial property compared to a Residential one and in addition the rate of interest they will charge.
Presently there is around a clear 2% + gap between residential and commercial rates so i guess from the lenders perspective you can tell where there preference is.
Certainly starting out on your investment journey i would be looking at Residential so reduce your risk and exposure.
You might want to think about how you structure any new loan trying to use as little of the equity in your property as possible.
Certainly avoid cross collateralising the securities as Banks love this and will encourage you to do it.Either way good luck in your journey and keep us all posted.
Richard Taylor | Australia's leading private lender
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