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How much should you save before buying commercial property?

investor-stories
1 minute read

How much should you save before buying commercial property?

by Cameron Micallef 08 July 2020 1 minute read

Investors looking to expand into commercial real estate are being advised that it will cost less than they predict.

buying commercial property
July 08, 2020

During a recent episode of Inside Commercial Property, Rethink Investment’s Scott O’Neill explained that at a minimum, investors should have $75,000 before looking into commercial assets.

“I basically work off a $300,000 price point. Yes, there are deals under that, you can find office spaces in Melbourne in the higher $100,000s and definitely get warehouses in the mid-$200,000s but they are rare,” Mr O’Neill said.

The commercial property expert explained that at a lower price point, they become riskier, with smaller clientele looking to rent out the space.

“So $300,000 is a nice price point. If you work off the minimum, 20 per cent of that is $60,000.

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However, much like residential property, Mr O’Neill points out that investors need to have more than just the minimum deposit.

“You still have stamp duty, you still have a building report, you still have a potential strata report you need to order, you still need to pay the solicitor and that’ll all equate to another $15,000 and we’re up to $75 grand,” Mr O’Neill said.

While highlighting that the minimum is $75,000, Mr O’Neill noted that he advises his clients to aim for closer to $100,000 to be safe.

He also stressed that it is a misconception that commercial properties near the city or a commercial hub need to cost the same as residential property, with $300,000 buying in ideal locations.

“It is because of the square metres, yes it is not going to be a 500 square metre warehouse,” he said.

“Everything in commercials is built off two things. The rental value and square metres. The rental value is written off the square metre rate. So, if you have a small warehouse, say 100 square metres, you're not going to justify big rent for that.” 

Mr O’Neill noted the smaller commercial properties and office spaces can often provide value for investors.

How much should you save before buying commercial property?
buying commercial property
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About the author

Cameron Micallef

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your... Read more

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