Commercial Property. Explained. | A CBRE Private Wealth series

By Ingrid Filmer
Senior Managing Director, Capital Markets – Private Wealth, CBRE

A residential investor looking at a $2 million commercial property will often start with one question: “What deposit do I need?’

That is the wrong first question.

The better question is: “How much cash do I need to buy the property, settle it properly and get through the first few months of ownership without being caught short?’

The deposit is only one part of the answer. Commercial property has a series of costs that sit around the purchase price, and some of them arrive before you own the asset, some at settlement and some just after settlement. If you only budget for the equity contribution, you can find yourself needing another meaningful amount of cash at exactly the wrong time.

For a first commercial purchase, I would break the cash requirement into six buckets.

1. Your equity contribution
Let us use a $2 million purchase as the example.

Commercial lending is assessed differently to a standard residential home loan. The amount a bank is prepared to lend will depend on the property, the tenant, the lease, the borrower, the valuation and the bank’s credit appetite.

For illustration only, if a lender is comfortable at 65% loan-to-value ratio, the loan would be $1.3 million and your purchase equity would be $700,000.

That $700,000 is not your total cash requirement. It is simply the starting point.

Before you even get to settlement, you may already have paid legal fees, due diligence costs, a valuation fee and bank-related costs. At settlement, transfer duty and adjustments are added. Immediately after settlement, you may also need to fund insurance, accounting or ownership structure costs, property management and a short-term cashflow gap before rent starts flowing to you.

That is why I would never tell a new investor, “You need a 35% deposit, so you need $700,000.’ It gives a false sense of certainty.

2. Transfer duty can be a very large number
Transfer duty, still commonly called stamp duty, is one of the biggest additional cash costs and it varies substantially between states and territories.

Using Victoria as an example, the current general non-principal-place-of-residence duty on a property with a dutiable value of exactly $2 million is $110,000.

So our illustrative buyer has already moved from $700,000 of equity to $810,000 before legal fees, due diligence, finance costs, insurance or settlement adjustments.

There is also an important new Victorian wrinkle for commercial and industrial property.

Victoria’s Commercial and Industrial Property Tax reform started on 1 July 2024. A qualifying commercial or industrial property can enter the reform when a relevant transaction occurs. Once a property has entered the reform, later transactions may be exempt from land transfer duty if the statutory requirements are met. The property then moves toward the annual Commercial and Industrial Property Tax regime after its 10-year transition period.

For an investor, the practical lesson is simple: do not assume every Victorian commercial property will attract the same duty outcome just because two properties have the same price. Ask your solicitor or conveyancer to confirm whether the property has entered the reform and what the duty position is for your particular transaction.

This is exactly the sort of point that can materially alter the amount of cash you need.

3. Spend due diligence money in stages
You can spend a surprising amount of money investigating a commercial property, particularly as the asset gets larger or more complex.

You may need a solicitor to review the contract and lease. You may want a building inspection. Depending on the property, you might also want specialist reports on the roof, air-conditioning, fire services, lifts, environmental issues, drainage, electrical systems or other major plant.

The mistake is to commission everything at once before you have answered the obvious questions.

I like the idea of a “first ten minutes’ review before you start spending serious due diligence money.

Who is the tenant? What rent are they paying? Can they afford it? How long is the lease? What options exist? Who pays the outgoings? What is the location like? What have comparable properties sold for? Is the asking price or likely purchase price sensible?

If the asset still stacks up after those basic questions, then increase the level of investigation.

The amount you spend on due diligence should be proportionate to the amount you are investing and the risks you are taking. A $2 million property with complicated building services may justify several specialist reports. A simple modern standalone asset may not need the same level of investigation.

The key is that this is real cash you need before settlement, and sometimes before you even know whether you will ultimately buy the property.

4. Finance has costs beyond the interest rate
Commercial buyers often focus heavily on the interest rate and forget the setup costs around the loan.

A lender may require a valuation, and the borrower may have to pay for it. There can also be application, establishment, legal or documentation costs depending on the lender and facility.

These are not necessarily huge relative to a $2 million purchase, but they are part of the cash equation.

The valuation is particularly important because the bank lends against its accepted value, not simply whatever price you agreed to pay.

If you buy for $2 million and the bank’s valuation comes in lower, your required equity contribution can increase. That can be far more significant than the valuation fee itself.

So when you are working out your total cash position, leave room for the possibility that the loan proceeds are not exactly what you first expected.

5. Settlement is not just “purchase price less loan’
At settlement, there are usually adjustments between the buyer and seller.
Council rates and other property expenses may have been paid in advance by the seller. Depending on the property, lease and jurisdiction, there may also be other amounts requiring adjustment.

Your conveyancer will calculate these amounts as part of the settlement statement.

For investors coming from residential property, this can feel like a small administrative detail. It is not something to ignore when you are planning cash.

You also need insurance in place from the appropriate point under the contract, and a commercial policy may require an annual premium to be paid upfront. Even if the lease allows you to recover an insurance cost from the tenant, you may still need to fund the premium first and recover it later through the outgoings process.

That distinction between “recoverable’ and “cash I need today’ matters.

6. Do not assume the rent lands in your account the day after settlement
One of the most overlooked issues is rent timing.

With a small local tenant, changing the landlord’s bank details may be relatively straightforward. With a major national tenant, the new owner may need to be onboarded as a supplier or creditor in the tenant’s accounts system.
That process can take four or five weeks.

Now imagine you settle just before the tenant’s normal rent payment date. The tenant’s system may already be set to pay the vendor. The rent may need to be adjusted at settlement, redirected later or dealt with between the parties through the conveyancers.

You need to know when rent is actually due under the lease. Do not assume it is always the first day of the month. Some leases have different cycles, and a lease commencing mid-month may have an initial part-month payment before moving to a standard monthly cycle.

The practical step is to notify the tenant early, complete debtor or landlord onboarding well before settlement where possible and make sure the settlement statement properly deals with any rent that has already been paid or is about to be paid.

Again, the property may be producing income, but that does not mean the cash will hit your account immediately.

What should I allow on a $2 million purchase?
Using our illustrative Victorian example and assuming a 65% bank loan:

Purchase equity: $700,000

Victorian transfer duty at exactly $2 million, where standard duty applies: $110,000

Subtotal: $810,000

Then add legal and conveyancing costs, due diligence reports, bank and valuation costs, settlement adjustments, the insurance premium and a working-capital buffer for the period before rent and recoveries begin flowing normally.

I would not treat the $810,000 as the finish line. It is the beginning of the total cash calculation.

Depending on the asset and the transaction, those additional items could be modest or they could run into tens of thousands of dollars. The point is not to nominate one universal number. The point is to build a complete acquisition budget before you bid or sign.

And then there are the early ownership costs

Once you own the property, there may be annual compliance obligations, accounting costs and, if the property is held in an SMSF or another structure, additional administration and compliance costs.

If you appoint a property manager, the fee is often deducted from rent as it is collected. Whether that fee is recoverable from the tenant depends on the lease and the applicable law. Do not assume every ownership cost can simply be passed through.

This is where commercial property becomes much easier to understand once you stop thinking only about “the deposit’.

The better checklist is:

• How much equity do I need?
• What transfer duty applies to this exact property and transaction?
• What will I spend before settlement on legal and due diligence?
• What finance and valuation costs will I incur?
• What settlement adjustments and insurance do I have to fund?
• When will the first rent actually reach me?
• What ongoing ownership, accounting, compliance and management costs begin from day one?
• A $2 million commercial property does not necessarily require $2 million in cash, but it does require more cash planning than simply calculating the deposit.

If you understand every line before you buy, settlement becomes a process rather than a surprise.

Source check and important note
Victorian duty and Commercial and Industrial Property Tax references were checked against the State Revenue Office Victoria on 18 September 2026. The standard non-principal-place-of-residence duty at exactly $2 million is $110,000 where ordinary duty applies. CIPT treatment is property and transaction specific. This article is general education only and is not legal, tax, finance or accounting advice.

References: State Revenue Office Victoria, Land transfer duty – non-principal place of residence (current rates); State Revenue Office Victoria, Understanding commercial and industrial property tax.

Commercial property does not need to feel too hard. Follow the series and let’s demystify it together.