Commercial tenants are harder to come by than residential renters. As a result, it’s not uncommon for commercial properties to have long gaps between tenancies. When the property is empty, you have to cover all the costs without the support of rent. So it’s a good idea to have a large cash buffer on hand that you can draw on during these periods
Most lenders view commercial property as riskier than residential so often their loan to value ratios (LVR) on commercial mortgages are a lot lower than home loans. That means you have to stump up more cash for a deposit.
- More vulnerable to economic shocks
Demand for commercial property tends to fluctuate depending on the strength of the economy. That’s great news when it’s booming, but less so when it’s a downturn. While residential property can also be susceptible to economic conditions, people always need a place to live.
The value of a commercial property is closely linked to the strength of its leases. So when it’s vacant or a lease is about to expire, the property’s value could well fall.