Taking on the Commercial Investment Property
Buying properties is not only an investment; it is also a status symbol. Properties grow in value with time as opposed to putting that money in the bank that only grows very minimally each year. However, a new strategy has recently surfaced. One borrows money to by some property. And this is called, commercial investment property.
This concept works based on the idea that these properties may be used commercially in order to earn on a regular basis. For instance, houses may be rented out in order that the money invested on it may be returned. However, Shawn French, mortgage adviser for Smartline, says that though these advantages are true, these may still be outweighed by the costs incurred in borrowing the money.
French explained that lenders see that the usable life of a property is usually around 15 years; so they structure their loans using the same period. Though some lenders can give a 25-year span, most still give only 15 years. And when the duration is shorter, the cost of servicing the loan is higher.
The commercial loan will also entail more equity since lenders see it as more risky. If residential property buyers are usually allowed to borrow up to 95 per cent with mortgage insurance, commercial loans are only allowed up to 75 per cent.
The loan application fee for commercial loans is 0.75 per cent plus the valuation, legal, and ongoing fees. If you will only have to pay $600 for a residential fee, you will be charged $3500 for a $500,000 commercial loan.
French added that some ongoing fees are at around 0.2 per cent a year, some others have $8 and $15 a year, and the commercial loan fee is still higher. Even worse, some lenders require annual reviews which means the borrower will have to justify his borrowing every year.
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Source: http://www.theage.com.au/money/commercial-loans-101-20110315-1bv3s.html
