Property types for SMSF commercial loan

Share your concerns & ideas about commercial property loans in Australia.
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JohnJohn
Posts: 33
Joined: Wed Sep 04, 2013 3:13 pm

Property types for SMSF commercial loan

Post by JohnJohn »

Hello home loan forum,

My partner and I have been thinking of investing in a commercial property. We researched for quite a while before we found a great investment opportunity in Adelaide. We decided on using our SMSF to get a mortgage to finance the purchase.

The thing is, we don’t know how the banks will react to different commercial properties. As we’re not certain about the type of property we’ll be investing in right now, we’d appreciate it if anyone could help shed some light on this matter. Thanks in advance.

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Otto Dargan
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Re: Property types for SMSF commercial loan

Post by Otto Dargan »

Hello JohnJohn. Welcome to the forums.

If you take out an SMSF commercial loan to invest in a standard commercial property then you need to know that the lenders tend to prefer certain property types over others.

Here is a list of commercial properties that most lenders tend to finance relatively easily:
  • Residential properties and offices.
  • Factories and warehouses.
  • Retail shops and restaurants.
  • Rural properties and farms, although some conditions may be applicable.
On the other hand, you may find it difficult to obtain finance for specialised properties such as:
  • Development sites.
  • Vacant land, in some cases.
  • Properties that are not in good condition.
  • Single use securities such as pubs, petrol stations, and day care centres.
What type of commercial property are you guys considering to invest in?

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

JohnJohn
Posts: 33
Joined: Wed Sep 04, 2013 3:13 pm

Re: Property types for SMSF commercial loan

Post by JohnJohn »

We’ve considered investing in either a restaurant or an office. We’ve also considered a petrol station but it seems highly unlikely now. We have one more question - how much will we be able to borrow?

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Otto Dargan
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Re: Property types for SMSF commercial loan

Post by Otto Dargan »

Hi JohnJohn,

With an SMSF loan, many lenders may allow you to borrow up to:
  • 70% of the value or 70% Loan to Value Ratio (LVR) of a commercial property.
  • 80% LVR of a residential property.
  • $10 million. If you want to borrow even more then you may be able to do so on a case by case basis.
It should be noted that a loan term of up to 15 years for commercial security properties is in place. If you want to pay interest only then you may do so for up to five years for commercial properties and 15 years for residential properties.

All of this seems to be quite conservative on the side of the lenders. This is because:
  • The mortgage is a non-recourse loan. This makes it harder for the lenders to recover their money.
  • The security property is a commercial property, which means that it may take longer to sell.
  • In comparison to others, this is a relatively new area of lending. Thus, there is a possibility for the existence of other unforeseen risks.
If you want to learn more about this then you can have a look at our website. You can also talk to one of our experts directly on 1300 889 743 or fill in our free assessment form and one of our brokers will contact you instead.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

JohnJohn
Posts: 33
Joined: Wed Sep 04, 2013 3:13 pm

Re: Property types for SMSF commercial loan

Post by JohnJohn »

Thanks a lot for the great info, Otto. We didn’t think your website would be so amazing. It helped us learn a lot more than what we’d learnt in the past few months of researching ourselves! For now, we’ll continue saving up and after we’ve come with a decision as to where to invest, we’ll give you a call to discuss things further. Good night :)

everlong
Posts: 37
Joined: Thu Jun 20, 2013 6:45 pm

Re: Property types for SMSF commercial loan

Post by everlong »

Hi there,

I’ve also been thinking of investing in a commercial property but I’m not too sure about using my SMSF just yet. Right now, I’m more concerned about the loan term that I may be allowed. I’m thinking of getting a loan term of at least 25 years. Will I be able to get it?

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Otto Dargan
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Posts: 7730
Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
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Re: Property types for SMSF commercial loan

Post by Otto Dargan »

Hi everlong,

In most cases, the term of your commercial loan may be determined by the security that you offer to the lender. You may be able to get a loan term of up to:
  • 30 years if your security property is a residential property.
  • 20-25 years through a select few lenders if you offer a commercial property as security.
  • 15 years for most commercial property loans.
  • 5-7 years if you are taking out the loan for buying commercial equipments.
It should be noted that it is highly unlikely that you get a loan term of 30 years on a commercial property. If you want to get a more clear understanding of this, you can speak to one of our mortgage brokers by calling our office.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

everlong
Posts: 37
Joined: Thu Jun 20, 2013 6:45 pm

Re: Property types for SMSF commercial loan

Post by everlong »

That’s good news for me! Thanks for your help, Otto. You seem like someone who knows his stuff. For now, I’ll check out your website to learn more. Once I’ve got all the info I need, I’ll call your office to schedule an appointment with one of your brokers to discuss things in more detail. Goodbye.

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