Do You Know How to Finance a Medical Centre Purchase?

Buying a Medical Centre Means Dealing With Tenant-Dependent Valuations

Medical centres are valued primarily on their lease agreements and tenant profiles, not just the building itself. A lender will assess the security of your tenants, the length of remaining leases, and whether the GP practices or specialists are established or transient. A medical centre with four GPs on three-year leases and two specialists on rolling six-month agreements will be assessed differently than one anchored by a pathology provider on a ten-year lease with options. The loan amount and interest rate you're offered will reflect that difference.

Consider a buyer looking at a strata title medical centre in a Brisbane suburb. The property has three tenanted suites, all occupied by GPs, but two are on leases expiring within twelve months. The lender's valuer will discount the income from those two suites because there's no certainty they'll renew. That reduces the property's assessed value and increases the loan-to-value ratio, which can push the buyer into a higher interest rate tier or require a larger deposit. If those leases had three years remaining with options, the valuation would likely support a higher loan amount at a lower rate.

If you're financing a commercial property that includes medical or health tenants, you'll need to provide copies of all lease agreements, tenant financials if available, and any renewal options or make-good clauses. Lenders want to see stability, and the more documentation you can provide upfront, the smoother the process.

What Loan Structure Works When You're Occupying Part of the Centre Yourself?

If you're a GP or specialist buying a medical centre to occupy one suite and lease the others, the loan will be structured as a blend of owner-occupied commercial finance and investment property finance. Some lenders will split the loan based on the proportion you occupy versus the proportion you lease out. Others will treat the entire loan as commercial property finance and ignore the owner-occupied element altogether. The structure affects the interest rate, the repayment terms, and whether you can claim the full interest expense as a tax deduction.

In a scenario where a GP purchases a medical centre for their practice and leases two suites to other practitioners, a lender might assess 50% of the property as owner-occupied and 50% as investment. The owner-occupied portion may attract a slightly lower rate, but the lender will also consider the business income from the GP's practice to service that portion of the loan. The investment portion will be assessed on rental income alone. If the GP's practice is a partnership or run through a trust, the lender will want to see the business structure and financials before approving the full loan amount.

This structure also affects your refinancing options later. If you decide to sell your practice and lease your suite to another GP, the entire property becomes an investment, and you may need to refinance to reflect that change. Some lenders allow you to adjust the loan structure without a full refinance, but not all do.

How Do Lenders Assess Loan Serviceability for a Medical Centre Purchase?

Serviceability is calculated on the net rental income from the property, not the gross. Lenders will apply a vacancy factor and deduct outgoings like council rates, body corporate fees, insurance, and management costs before determining how much income is available to service the loan. For a medical centre, outgoings can be higher than a standard office building because of shared facilities, cleaning, and patient access requirements. A typical vacancy factor is 5% to 10%, but if your leases are short-term or the tenants are new to the location, the lender may apply a higher rate.

If you're buying a medical centre with $120,000 in annual rent across all suites, the lender will deduct outgoings (say $30,000) and apply a vacancy factor (say 7.5%, or $9,000), leaving $81,000 in net income. That figure is then assessed against the annual loan repayment to determine whether the property can service the debt. If the loan amount requires $85,000 in annual repayments, the shortfall will need to be covered by other income, such as your salary, business income, or rental income from other properties.

Lenders will also consider whether your purchase is part of a broader business expansion. If you're buying the medical centre to consolidate multiple practices or relocate an existing clinic, they may assess your business financials alongside the property income. That can improve your serviceability position, but it also means providing additional documentation like profit and loss statements, BAS returns, and accountant letters.

Fixed or Variable Rates for Commercial Property Finance

Commercial property loans can be structured with a fixed interest rate, a variable interest rate, or a combination of both. Fixed rates lock in your repayment for a set term, usually between one and five years, which can be useful if you're forecasting cashflow for a new practice or want certainty during the early years of ownership. Variable rates give you more flexibility, including the option for additional repayments and access to a redraw facility, but your repayment will move with rate changes.

Most lenders allow you to split the loan, fixing a portion and leaving the rest variable. That gives you some protection against rate rises while maintaining access to features like redraw and extra repayments. The split doesn't need to be 50/50. You can fix 70% and leave 30% variable, or any combination that suits your cashflow and risk tolerance. Just be aware that breaking a fixed rate early can trigger break costs, which are calculated based on the difference between your fixed rate and the lender's current wholesale rate.

What Deposit Do You Need and How Is the Commercial LVR Calculated?

Most lenders will lend up to 70% of the property's valuation for a standard commercial property loan, which means you'll need a 30% deposit plus costs. Some lenders will go to 80% LVR for medical centres with strong tenants and long leases, but that usually comes with a higher interest rate and may require lender's mortgage insurance. The LVR is calculated on the valuation, not the purchase price, so if the valuer assesses the property at a lower figure than what you've agreed to pay, you'll need to cover the difference with a larger deposit.

If the property is strata title, the lender will also assess the body corporate financials and the number of other medical or health tenants in the building. A well-managed strata scheme with a healthy sinking fund can support a higher LVR, while a scheme with deferred maintenance or special levies pending may result in a lower loan amount.

Settlement costs for a commercial property purchase typically include legal fees, stamp duty, valuation fees, and loan establishment fees. These can add 3% to 5% on top of your deposit, so factor them into your funding requirement. Some lenders offer a limited recourse loan structure or will consider other property as additional security to reduce the deposit required, but that depends on your overall financial position and the strength of the medical centre's income.

When Does a Bridging Loan Make Sense?

If you're buying a medical centre before selling an existing property or practice, commercial bridging finance can cover the gap between purchase and sale. Bridging loans are interest-only, short-term facilities, usually six to twelve months, and the interest rate is higher than a standard commercial property loan. The loan is assessed on the combined value of both properties, and you'll need a clear exit strategy, such as a contract of sale on the property you're selling or a commitment from a lender to refinance once the sale settles.

Bridging finance is also used when a medical centre needs refurbishment or fit-out before it can generate rental income. In that case, the lender may offer progressive drawdown, releasing funds as each stage of the work is completed. Once the fit-out is done and tenants are in place, you refinance into a standard commercial property loan with a lower rate and longer term. This approach works when the end value of the property will support the full loan amount, but it requires detailed costings and a builder's contract to get approval.

Coastline Lending Company can help structure a commercial loan that matches your purchase timeline and cashflow, whether that's a standard term facility, a split-rate loan, or a bridging arrangement while you finalise other property sales.

Call one of our team or book an appointment at a time that works for you.

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