In a record-low interest rate environment, if you’re not aware of where the market actually is, it’s very easy to think you’re getting a great deal, when you’re actually paying overs.
Commercial Property Investment is a perfect example at the moment. Think that a rate in the 4’s is amazingly cheap?
Depends. If your debt is less than $3m or so, that’s probably about right.
But if you have property investment debt of $5 or $10m, and particularly if you’re heading well north of that level, if you have a long WALE (Weighted Average Lease Expiry), good quality tenants and an LVR within bank policy levels, a rate with a 4 in front is now excessive.
As at today, the EOFY19 (28/6/19), 90 day BBSY is about 1.20%.
Now a fair market borrower margin on top of that can vary a fair bit depending on your situation, but to get a rate of 3.9%, your margin would need to be BBSY+2.7%. Which is not a fine margin.
So if you have a good quality property & debt risk – and I don’t even mean exceedingly good – a margin of 2.0% = a rate of 3.2%.
Not sure what kind of margin your asset and/or portfolio should be on? Talk to us.