Commercial charges higher
Sheyne Walsh, head of lending, Centric Wealth, says the financing of non-standard residential assets can add a layer of complexity to buying such properties: "The big banks as soon as they get a sniff that it's commercial [property] they want to charge you commercial rates."
The interest rate differential can be 1 per cent plus there are hefty ongoing fees. The annual loan service fee for a standard residential property might be $96 to $400 whereas on a commercial facility it can be 0.8 to 2.5 per cent.
In addition, Walsh says, the fee is charged on the entire facility. So an investor with a $1 million commercial facility who only uses $700,000 will still face a 1 per cent fee or $10,000 a year. Commercial facilities also tend to come with loan terms matched to the lease term, which can create pressure when a bank won't renew a facility unless tenants are locked in.
People are often better off getting room to "manoeuvre" by using their house as security and securing a 25-year loan term to buy such properties, says Walsh.