Time to Shift to a Commercial Property Investment?

IStock Wellington One

Posted 12 months ago by Default Admin

With the Reserve Bank of New Zealand (RBNZ), tightening access for property investors to enter the residential property market, there could be an opportunity for property investors to change tact and invest in the commercial property market.

From September 1st, residential property investors will need a minimum deposit of 40 percent which makes it inevitable that some investors may look at alternative options, especially given you can enter commercial property with a 35 percent deposit.

 

What you need to know if you are heading towards commercial property investment:

  • Make sure you are aware of the different lending criteria that comes with buying a commercial property.
  • Sometimes commercial properties can be badly marketed – especially in private sales – so you need to actively check various websites and search for the deals. For example, we became aware of our Craig Pope site through a sign in a window which was not advertised on the internet.
  • Be savvy. If you have good cash flow and do your homework – you could do well.

Bayleys commercial property expert Stephen Lange says: “there has already been a slight increase in commercial property investment due to the residential market being so cluttered”.

 

Pros of Investing in Commercial Property:

  • Commercial lending rates (like housing rates) are historically low at the moment
  • Tenants in commercial property usually pay for outgoings such as; council rates, insurance and body corporate fees.
  • As commercial tenants are businesses, they can be less time consuming when it comes to managing them.
  • Businesses tend to stay longer than a residential tenant. For example, a bank staying in the same spot for years and years.
  • This can be a good option for a small business to buy their own premises and pay themselves ‘rent’.

 

Cons:

  • Most commercial loans need to be paid off over 10-15 years.
  • Slightly higher commercial interest rates as opposed to residential.
  • Harder to buy properties that are untenanted unless the investor has good cash flow.
  • Banks require registered valuations and earthquake strengthening reports.
  • Sometimes commercial buildings can be vacant for long periods so the owner’s cash flow needs to be strong enough to cope with this.

Whether you are looking to invest in commercial, or residential property, make sure you seek the right advice from your Craig Pope Mortgage Adviser to help you make the best decision.

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