Accurately determine your available funds before investing in commercial property

Before you commit to a commercial property purchase, it is important to establish what funds you actually have available to invest.

It's certainly not a complicated process – but a vital one, nonetheless.

You see, many investors tend to overestimate – and some will even underestimate – the amount of the funds they may have available. That immediately impacts upon the value of the property you can acquire.

There are two key mistakes you can make:

1. Unwittingly underestimating your equity. When starting out, many commercial property investors tend to only consider the amount of ready cash they've got on hand. Whereas, you will generally find you have access to considerably more than you think. You might already have a home you own, and perhaps an apartment as well – even though there may be existing mortgages involved.

By talking with your finance broker (who should already be part of your consulting team), you will most likely to be able to restructure your current borrowings. In that way, you can release additional funds to add to your available equity.

2. Overlook some of your acquisition costs. On top of the purchase price, you also need to allow for things like stamp duty, legal costs, a valuation and so on. Depending on in which state you purchase, your "on-costs" will range between 6.5% and 7.5%. Therefore, I suggest you allow 8% on top of the price in order to provide for a comfortable safety margin.

You need to remember that your loan is based on a percentage of the property's value. However, the on-costs need to come out of your own pocket. As such, you need to ensure there are no surprises when the time comes to settle on your property.

Bottom line: trying to factor in all of this can become a little confusing. Unless, of course, you do it on a regular basis or already have access to some software to handle these calculations for you.

Chris Lang is an advisor to commercial property investors, sell-out author and regular speaker on how to invest in commercial property. You can visit his website Property Edge Australia to help you get the most out of your commercial property investing.