Common Mistakes When Buying a Medical Centre

Buying a medical centre is different from buying investment residential property.

The loan structure matters as much as the purchase price, especially when you're deciding how much to borrow, whether to include fit-out costs, and how to structure repayments around your practice income. Getting the loan structure wrong can lock you into rigid repayment terms or force you to inject more capital upfront than necessary.

How Much Can You Borrow for a Medical Centre Purchase?

Most lenders will lend up to 70% of the property's valuation for a medical centre purchase, though some specialist commercial lenders may extend to 80% depending on the property's location, tenant mix, and lease terms. Your borrowing capacity also depends on your income from the practice, rental income from tenants, and existing debts. Lenders assess serviceability differently than they would for a home loan, often looking at net rental income rather than personal income alone.

Consider a GP who owns a practice in Mount Eliza and wants to purchase the medical centre building they currently lease. The property is valued at $1.8 million, generating $140,000 annually in rental income from three tenants including their own practice. With a 70% loan-to-value ratio, they could borrow $1.26 million, requiring a $540,000 deposit plus around $80,000 to $100,000 for settlement costs, stamp duty, and legal fees. The lender assessed serviceability based on the net rental income after outgoings, not the GP's personal income, which meant they could borrow the full amount without needing to show additional wage income.

Should You Include Fit-Out Costs in the Loan?

If the medical centre requires refurbishment or fit-out work after purchase, you can often roll those costs into the loan rather than funding them separately. This is particularly useful if you're buying a centre that needs updated consulting rooms, reception areas, or compliance upgrades. Lenders will typically release funds progressively as the work is completed, similar to a construction loan, rather than providing the full amount upfront.

The GP in the earlier example also needed $150,000 to upgrade two consulting rooms and replace the reception area. Rather than using practice savings, they included the fit-out cost in the commercial loan, bringing the total loan amount to $1.41 million. The lender provided a progressive drawdown facility, releasing funds in three stages as the builder reached key milestones. This kept the practice's cashflow intact and allowed them to continue operating while the work was completed.

Fixed or Variable Interest Rates for Commercial Property Loans?

Commercial property loans can be structured with fixed, variable, or split interest rates. A variable rate offers flexibility with redraw and offset facilities, which is useful if your practice income fluctuates or you want to make extra repayments when cashflow allows. A fixed rate locks in your repayment amount for a set period, usually one to five years, which makes budgeting more predictable but limits your ability to make additional repayments without penalty.

Many medical practitioners prefer a split structure, fixing part of the loan to protect against rate rises while keeping the rest variable for flexibility. The proportion you fix depends on how much certainty you want in your repayments versus how much access you need to redraw or offset.

What Happens If You Already Own the Building Through a Trust or Company?

If you're buying the medical centre through a trust or company structure, the loan application process differs from a purchase in your personal name. Lenders will assess the trust or company's financials, not just your personal income, and may require personal guarantees from the directors or beneficiaries. The loan terms and interest rates can also vary depending on whether the entity has an established trading history or if it's a newly created structure for this purchase.

This is common for medical practitioners who want to separate the property ownership from the practice operations for asset protection or tax planning. The loan structure needs to align with your accountant's advice on how the property should be held, which is why it's worth discussing the ownership structure before you submit a loan application.

Interest-Only Repayments or Principal and Interest?

Commercial property loans often allow interest-only repayments for the first few years, which reduces your monthly outgoings and keeps more cash available for the practice. After the interest-only period ends, the loan typically reverts to principal and interest repayments unless you negotiate an extension or refinance.

Interest-only can work well if the rental income from tenants covers the loan repayments and you'd rather use surplus cash to reinvest in the practice or pay down other debts. Principal and interest repayments build equity faster but require higher monthly repayments, which may not suit every cashflow situation.

How Long Does Settlement Take for a Medical Centre Purchase?

Settlement for a commercial property purchase typically takes 60 to 90 days, longer than a residential property. This allows time for the lender to arrange a commercial property valuation, review lease agreements, and complete due diligence on the tenant mix and rental income. If the property includes multiple tenants or strata title arrangements, the process can take longer.

You'll need to coordinate with your solicitor to review the contract of sale, check for any caveats or encumbrances, and confirm that all leases are properly documented. If you're also arranging fit-out finance or commercial bridging finance to cover the deposit before settlement, the timeline needs to account for those approvals as well.

What If You're Refinancing an Existing Medical Centre Loan?

If you already own a medical centre and want to refinance to access equity, reduce your interest rate, or change your loan structure, the process is similar to refinancing a residential property but with a focus on the property's rental income and tenant stability. Lenders will want to see current lease agreements, rental income statements, and an updated valuation before approving the refinance.

Refinancing can also be useful if you want to switch from principal and interest repayments to interest-only, or if you want to move from a fixed rate to a variable rate to access redraw or offset features. The key is to compare the cost of switching, including any break fees or discharge fees, against the benefit of the new loan structure.

Buying a medical centre is a different transaction to buying a home or an investment property, and the loan structure needs to reflect the way rental income is generated, how the property is held, and how the purchase fits into your broader financial position. Getting the structure wrong at the start can limit your options later, especially if you want to expand, refinance, or use the equity for other purposes.

Call one of our team or book an appointment at a time that works for you to discuss how to structure commercial property finance for your medical centre purchase.

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