Can I Buy a Commercial Property in My Personal Name?
By Michelle
When people think about buying commercial property, they often assume they need to own a business, set up a company or have a large amount of cash available for the deposit.
But that isn't necessarily the case.
Individuals can purchase commercial property in their personal name, just as they can purchase a residential investment property.
And commercial property doesn't necessarily mean a multi-million-dollar office building or warehouse. There are commercial properties available at price points below $500,000, depending on the property type and location.
For some investors, commercial property may therefore be more accessible than they initially thought.
Do I Need a Business to Buy Commercial Property?
No. You don't necessarily need to operate a business to purchase a commercial investment property.
For example, you could be a PAYG employee purchasing a tenanted warehouse, office or commercial unit as an investment. The property could potentially be purchased in your personal name, with the rent received from the commercial tenant forming part of your investment income.
You may also have the option of purchasing through another structure, such as a company, trust or SMSF.
Which structure is appropriate is ultimately a legal, accounting and tax question and should be discussed with the appropriate professional advisers.
From a finance perspective, however, your proposed ownership structure can affect which lenders and commercial loan products are available to you.
Do I Need a Large Cash Deposit?
This is another common misconception about commercial property.
While commercial lending can require a larger contribution than some residential lending, that contribution doesn't necessarily have to come entirely from cash savings.
If you already own a home or residential investment property and have sufficient usable equity, that equity may be able to form part of the funding strategy for your commercial purchase.
For example, an investor may be able to release equity from a residential property and use those funds towards the deposit and purchasing costs of a commercial property, subject to servicing, valuations and lender criteria.
This can be particularly relevant for established homeowners and residential property investors who have accumulated equity but don't have a large cash deposit sitting in the bank.
There are also commercial properties available for less than $500,000. Small warehouses, industrial units, offices, retail premises and other strata commercial properties can provide an entry point into commercial property at a considerably lower purchase price than many people expect.
The amount you can borrow will depend on the property, lender, location, loan structure and your financial position, so it's worth understanding your borrowing capacity and available equity before ruling commercial property out.
Can Commercial Property Be Negatively Geared?
Potentially, yes.
Negative gearing isn't limited to residential investment property.
Where the deductible costs associated with an income-producing commercial property exceed the income it generates, a rental loss may arise. Depending on your circumstances and ownership structure, that loss may be able to be claimed against other income.
This can be particularly relevant for investors who have traditionally only considered residential property.
Commercial property may therefore be worth discussing with your accountant as part of a broader investment strategy rather than assuming it is an investment option reserved for businesses.
Tax outcomes depend on your individual circumstances, ownership structure and use of the property, so independent tax advice should always be obtained.
How Is a Commercial Investment Loan Assessed?
This is one of the biggest differences between residential and commercial property finance.
There isn't one universal set of commercial lending rules.
Depending on the lender, property and loan structure, assessment may consider factors such as:
your personal income and financial position
the rental income from the property
the remaining term of an existing lease
the tenant
the type and location of the commercial property
the loan-to-value ratio (LVR)
your assets and liabilities
whether the application qualifies for a full-doc, alt-doc or lease-doc lending option.
This means two investors looking at the same property may have quite different finance options.
It also means being told “no” by one bank doesn't necessarily mean commercial property finance isn't available.
Personal Name, Company, Trust or SMSF?
There isn't one ownership structure that's right for every commercial property investor.
Buying in your personal name may be relatively straightforward, but investors may also consider a trust, company or SMSF for tax, asset-protection, estate-planning or investment reasons.
Before deciding, it can be useful to have your accountant or financial adviser consider the ownership structure alongside your likely finance options.
That's because changing the borrower or ownership structure can change the lenders and loan products available.
Ideally, your accountant, solicitor and finance broker should each consider the transaction from their respective areas of expertise before the purchase is finalised.
Could Commercial Property Be More Accessible Than You Think?
If you've dismissed commercial property because you assumed you needed a company, a huge deposit or millions of dollars to invest, it may be worth taking another look.
You could be a PAYG employee looking beyond residential property, an existing property investor with equity available, or a business owner considering commercial property as part of your longer-term investment strategy.
Before you start looking for a property, I can help you understand your borrowing capacity, how much usable equity you may have, the likely contribution required and which commercial lenders may suit your circumstances.
You may find that getting into commercial property is more achievable than you expected.
General information only. This article does not constitute financial, legal or tax advice. Lending criteria vary between lenders and individual circumstances. Speak with appropriately qualified advisers about your circumstances before making an investment or ownership-structure decision.