Any decision to purchase, retain or sell a direct property asset should be carefully considered as there are specific costs and risks associated with this type of asset. We have listed below some of the main costs and risks relating to direct property assets.


There are many purchase costs associated with direct property.

These may include:

  • Time and cost of searching for a suitable property
  • Inspection reports (e.g. structural and/or pest inspections)
  • Legal and conveyancing fees
  • Loan establishment costs
  • Stamp Duty


The character and location of a property can have a big influence (positive or negative) on the current and future desirability of the property to purchasers and/or tenants. It is important to know the area in which a property is located, and to determine what future developments may be planned nearby which could impact on its suitability as an investment (such as a new highway, rubbish tip, high-rise development)


Direct property should be viewed as a long-term investment. This is due to the potential short-term volatility the direct property market (and/or specific locations) may experience. There is a significant purchase, ongoing and sale costs associated with investing in property which may take time to recoup.


When investing into direct property, you forego the opportunity to use that money to invest into other assets which may be more appropriate to helping you achieve your goals and objectives.
That is, after taking into account the estimated costs, risks and returns that apply to each of the major asset types, is direct property more likely to provide the best net return?


Make sure you stay focused.

Investing in property is a business decision, not an emotional reaction:

  • Get clear about what you want to achieve
  • Set a date as to when you want to achieve this goal
  • Identify milestones you need to do to get to your goals

It’s easy to get overwhelmed when you’re starting something new and as massive as property investing.

* General Advice Warning – End of Page.


Australian banks and other commercial lenders each have their own risk profiles and maximum loan amounts.

The maximum available from our lenders are:

  • 80% of the property value for loans up to $1,000,000.
  • 75% of the property value for loans up to $2,000,000.
  • 70% of the property value for loans up to $5,000,000.
  • Commercial Loans from $5,000,000 to $50,000,000 to be determined.

The type of commercial property loan and nature of your security, will effect the amount borrowed:

  • If the equity is available within your residential property, this property could be used as additional security to allow you to borrow up to 100% of the commercial property value, on a case by case basis.
  • Lease doc, low doc, and no doc loans will require a larger deposit.
  • Specialised security properties will require a larger deposit.


Different types of security represent different risks to the banks.

Standard commercial properties are usually the best type of security for a commercial property loan:

  • Offices.
  • Factories.
  • Warehouses (including showrooms and storage units).
  • Retail space.
  • Shop fronts.


Commercial property loans that are used for business or investment purposes, with the exception of residential investment properties, are not regulated by the National Consumer Credit Protection (NCCP) Act.  This means that most commercial borrowers do not have the same protection as home buyers.

The purpose of your commercial property loan will affect how your loan is assessed:

  • Investment (low risk): To buy or refinance a commercial property that will be leased.
  • Owner occupied (medium risk): To buy or refinance a commercial property that is leased to or occupied by your own business.
  • Working capital (high risk): Financing the day to day operations of your business or liquidity shortfalls.
  • Other purposes: All other commercial, business or investment purposes are considered on a case by case basis, e.g. buying an insurance broking practice.

Remember, it isn’t what your commercial property loan is secured on that determines the purpose but what your loan is used for.

Be careful if you’re using a commercial property as security for a loan that is not used for business or investment purposes such as buying a house by using your office as additional security. In this case, the loan would be regulated under the NCCP Act and some commercial lenders would not be able to approve your application.


As there is less legislation governing commercial property loans, the banks have more freedom with their lending policies.

This has given rise to several income verification options:

  • Full doc: This is a standard loan application where you provide full financial statements.
  • Lease doc: You must prove that the income from the lease is more than the interest repayments.
  • Low doc: You must provide partial income evidence such as an accountants letter, bank statement or BAS statements.
  • Forecasts: You must provide a profit and loss forecast showing that this loan will allow your business to earn additional income which will be sufficient to cover the repayments.

Don’t expect the banks to approve your loan if the lend represents high risk. Non-bank and specialist commercial funders may consider a higher risk application.


What are the typical features of a commercial property loan?

  • Full doc: Individuals, companies, trusts and self-managed superannuation funds are acceptable.
  • Term: Up to 15 years (longer on application) or 30 years for residential security.
  • Interest only: Up to 5 years (longer on application).
  • Interest rate type: Variable, fixed (up to 5 years) or bank bill facilities.
  • Additional repayments: Allowed on variable loans.
  • Redraw: Allowed for amounts that you have pre-paid.
  • Offset accounts: Normally not available.
  • Line of credit (LOC): Available at higher interest rates.
  • Capitalised interest: Available for development or land sub-division finance.

Each lender has their own target market, products and pricing so it is important to get matched with the lender that can accommodate your needs. This is where an experienced commercial mortgage broker can help.


Despite the collateral you provide, most banks will also ask for a General Security Agreement (GSA) over the property and any and all of your business assets.

However, as long as you can afford the loan or you have sufficient equity, your mortgage broker can argue against a GSA or Guarantee and Indemnity (G&I).

To explain, if your income from the property itself can service the debt then some banks will consider just the property as security without a personal guarantee from the directors.
If you need directors income then you must have a directors’ guarantee.

* General Advice Warning – End of Page.



The method that banks use to assess commercial property loans is extremely complicated as each application and security property is unique. Working out which lender is right for you isn’t easy because no bank is going to tell you that they aren’t the market leader in a particular area.

STEP 1: The Right Lender

Which lender specialises in the type of finance that you are after? As mortgage brokers, we tend to see one or two banks dominate each niche within the commercial funding market.

For example, we would recommend different banks for different client types:

  • Startup businesses.
  • Low risk commercial property investors.
  • Highly-geared commercial property investors.
  • Corporate borrowers.
  • SMSFs.
  • Developers.

By choosing a lender that has more experience lending to people with properties like yours, you’ll be much more likely to get your commercial property loan approved.

STEP 2: Present A Strong Case

Don’t just fill in the application form and provide the required documents!

You need to highlight the strengths of your application and present your situation in the way the bank prefers this information to be imparted.

Often, banks have their own templates and forms, so presentation is paramount to the success of your application.

STEP 3: Mitigate Their Concerns

If the bank doesn’t approve your application straight away?

Then it’s time to negotiate and attempt to resolve the banks concerns.

This can be completed in a number of ways:

  • Provide additional information to show that their concern is unjustified.
  • Change your situation to better match their lending guidelines.
  • Negotiate pricing to match the risk of your application.


Firstly, each lender has a different cost of funds depending on where they obtain the money that they lend out.

Naturally, the lenders with lower risk appetites tend to have lower interest rates.

Secondly, many lenders have a risk matrix which they use to price a larger commercial property loan.

This risk matrix will take into account:

  • Location of the security property.
  • Diversification of the property portfolio.
  • Condition and appeal of the security property.
  • Current and future state of the local property market.
  • Level of interest cover (ability to repay the debt).
  • Loan to Value Ratio (LVR).
  • Length of time until the lease(s) expire.
  • Strength of the tenant(s).
  • Asset position of the borrower.
  • Management experience / track record.

This risk matrix is a lot different to smaller commercial transactions where the LVR, loan size, and loan amount are the main determiners of the interest rate and fees.


As always, be careful who you do business with! You should see your lender as a business partner and you should know who you are doing business with.

Some private lenders are known for trying to take possession of development sites or for finding excuses to charge the default rate of interest.

The reputation of your lender matters. For small transactions with large lenders you will have little bargaining power to negotiate specific terms. On other hand, with a larger commercial loan you may be able to negotiate a loan contract that is more favourable.

The major banks can be incredibly ruthless with commercial customers so make sure that you negotiate from a position of strength and don’t push your boundaries! When push comes to shove they will look after themselves and not you.


For a small commercial property investment there is rarely any need for the bank to conduct annual reviews. However, where the risk to the bank may change from year to year, they may require a review.

The most common situations where a lender will require an annual review are:

  • The commercial property loan is over $1,000,000 (subject to bank policy).
  • Unsecured facilities.
  • Specialised security properties.
  • High-LVR, interest only loans.
  • Struggling with your repayments.

The lender will ask you to provide a profit and loss, balance sheet and cash flow forecast. In some cases, they may also revalue your security property.

The bank may use this as an excuse to label your commercial property loan as a higher risk and change the margin on your loan.

If this is likely to be a problem for you then let us know upfront and we can apply with a lender that doesn’t require annual reviews.


Applying for a commercial property loan is much more complex than a residential property, banks don’t publish their pricing and lending policies vary widely.

It is for these reasons that many high net worth investors choose to deal with a specialist commercial mortgage broker when buying a commercial investment property.

Why Specialist Commercial Broker:

  • Experience: A great mortgage broker won’t just get you a loan, they’ll help to guide you through your purchase.
  • Specialisation: Are you involved in a complex transaction? A mortgage broker that specialises in that type of finance can get you a better result.
  • Relationships: Knowing the decision makers with each lender can make all the difference.
  • Competitive pricing: When a loan is submitted by a broker, the banks know they have more competition and a well-informed borrower.
  • Flexible lending policies: Access to lenders with different risk appetites and funding sources allows for larger loan sizes and less restrictive terms.

* General Advice Warning – End of Page.


Know where you are and where you want to be:

Before you can move forward financially, we need to establish where you currently are and what are your financial goals and objectives. These personal goals and objectives should detail outcomes important enough to motivate your daily focus and action.

A written statement of purpose can be a most helpful place to start in the process of defining specifically what is to be accomplished.

Know the Difference Between “Cash Flow” and a “Budget”

A cash flow statement simply determines how much income you have left over after all of your fixed and variable expenses. This statement is based upon one simple calculation:

Total Income – Total Expenses = Net Cash Flow

You need to know exactly where your money is being spent, not whether you are in the black or red.

  • Positive cash flow is the ideal and may allow for additional steps to save.
  • Negative cash flow is generally an indication that you are living beyond your means.
  • Neutral cash flow is unlikely because the vast majority of people don’t spend, to the penny.


A budget is a plan expressed in dollar amounts that acts as a road map to carry out your objectives, strategies and assumptions.

A personal budget or home budget is a finance plan that allocates future personal income towards expenses, savings and debt repayment. Past spending and personal debt are considered when creating a personal budget.

Good managers realize that a budget is a guide and that it cannot be so rigid that it prevents timely action when needed. In rare circumstances the annual budget might be revised.

We have programs and spreadsheets that can help.


Are you buying a commercial investment property?

Talk to our mortgage brokers about your commercial property loan!

Give us a call on 07 3720 9222 or enquire online and one of our mortgage brokers will call you to discuss your needs.



General Warning Advice:
The information contained in this website is for general information purposes only. The information is provided by BDM Mortgages and while we endeavor to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the website or the information, products, services, or related graphics contained on the website for any purpose. Any reliance you place on such information is therefore strictly at your own risk.

Michael Lobodarz, Credit Representative (number 378667), Director of BDM Mortgages Pty Ltd ABN 74 614 141 650, Credit Representative

(number 494711) of, Interactive Mortgage & Finance PL ABN 49 130 407 091, Australian Credit Licensee (number 391922)