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Commercial property loans

Thinking about buying a commercial property? Read our tips and learn about how commercial property loans work and what you can expect in commercial property interest rates.


Commercial property can be an excellent investment

A wide range of commercial property loans is available

Commercial property loan rates can be higher than a regular home loan

Commercial property loans often require a larger deposit than a regular mortgage.

Commercial property loans

Lenders offer a wide variety of commercial property loans. The sort of loan best suited to your needs will depend on whether you are buying commercial property as an investor or as a business owner.

Commercial property loan rates vary between lenders though they are often higher than for a normal home loan. That’s because commercial property can be seen as a riskier investment. Offering residential property like your home or rental property as security can help to lower commercial property interest rates.'

Be prepared to pay a higher commercial property loan deposit

Commercial property loans usually need a deposit of at least 30% of the purchase price.

Different types of commercial property loans

Most commercial property loans work in much the same way as a home loan.

Choose between a variable rate, fixed rate, split rate, principal and interest or interest-only loan. Many commercial property loans also come with useful features like fee-free additional repayments or an offset facility.

Alternatively, you may prefer a line of credit commercial property loan. This gives you funding up to a predetermined limit and you only pay interest on the funds drawn down. Your Mortgage Choice broker can help you select a commercial property loan suited to your needs and budget, giving you a clear idea of how much you can afford to borrow and the regular loan repayments.

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Commercial vs. residential property

Long term leases

Commercial property leases usually run for longer periods than residential properties – several years rather than 6 to 12 months. This gives you greater certainty of rental income, plus rents tend to be reviewed annually. However, vacancy periods can be longer.

The impact of GST

Goods and services tax (GST) applies when you buy a commercial property, so allow an extra 10% on the property’s purchase price. As an investor, you can claim the GST back as an ‘input tax credit’ against GST charged on the property’s rent.

The lessee pays maintenance costs

Unlike residential property, the costs of maintenance, rates and repairs on a commercial property are paid by the lessee – not the landlord. This means more of the rent you receive goes towards your profit. However, be sure your commercial lease spells out who is responsible for the property’s ongoing expenses.

Some commercial properties serve a limited purpose

It can be harder to secure a lessee on a property that’s designed for a specific purpose. Opting for a property with multi-use appeal can help you attract a broader range of tenants.

Location is still key

As with any property investment, location plays a big role in the success of commercial property. Look for an area offering good transport links, a nearby pool of workers, and surrounding businesses that could offer support to lessees.

Could a commercial property deliver better rental returns?

Commercial property is usually regarded as a higher risk asset than residential property, and reflecting this, the rental return is usually higher. However, the decision between investing in residential or commercial property is a personal choice that will depend on the investor’s financial circumstances, goals and willingness to take on this higher risk investment.

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