Expanding your property investment portfolio to include commercial property can bring great rewards. But, financing a commercial property is more complex than a residential one.
Here are four ways commercial differs from residential finance:
1. Loan structure. Commercial loans often require a larger deposit, and have higher interest rates and shorter loan terms. For example, deposits for residential properties are between 5% and 20% of the property's value, but for commercial properties range from 20-30%. This is because lenders attach a higher risk to commercial properties and, therefore, require more security.
2. Assessment criteria. Applying for a commercial loan is more complex than a residential one. Most lenders want evidence of the property’s viability. Supporting loan documentation can include business projections, financial statements, lease agreements and tax returns.
3. Regulatory environment. Residential mortgages are more strictly regulated, with lenders having to comply with consumer protection laws and responsible lending practices. Commercial mortgages have fewer regulatory restrictions, allowing lenders and borrowers to negotiate terms more freely.
4. Tax implications. Commercial loan interest payments are tax deductible if the property is used for business purposes. For residential home loans, tax deductions apply to investment properties but not owner-occupied homes.
If you’re looking for a commercial loan, we can help. Click here to discuss options with one of our experienced mortgage brokers.