How To Finance Commercial Real Estate
Investing in commercial real estate could be one of the wisest investments you could make for your small business. A commercial property not only provides income from rent during the time it is owned, but it appreciates in value over time when it consistently receives care. When the owner decides to sell the property, they should be able to walk away with a substantial net gain.
The one thing that holds many people back from real estate investing is financing. Finding the right financing for their situation can be a considerable effort. Knowing options beforehand can help ease some of the burden.
One way to finance commercial real estate is through an SBA loan. The SBA doesn’t actually lend the funds, but they do guarantee them. This makes it much easier for the applicant to get approved through a bank. Typically, these types of loans require smaller down payments, offer fixed interest rates, and can bundle building improvements into the loan. The drawback is the extensive amount of paperwork involved.
The more common avenue for financing real estate is through a traditional bank loan. To be approved for a loan from your local bank, you would usually need to have at least 20 percent down. The bank likes to start the loan out with some equity for their own protection.
A more creative method for financing real estate is through seller financing. In this scenario, the seller acts as the lender and the buyer makes payments directly to the seller that include interest. This situation is good for the buyer, but for the seller, it means waiting longer to receive full payment for the property.
If you aren’t able to come up with the cash to purchase the building, the final option would be to borrow from family and friends. Of course, you would have to know people who have large sums of extra cash they aren’t using for themselves. Not everyone has associations who are willing to take such a risk; yet, it does happen. The best thing about third-party lending is less stringent and more customizable terms.
Purchasing commercial real estate with cash would be the ideal method for anyone, but most of the time, that simply isn’t possible. Knowing what options are available can help the investor make informed decisions that will best work out for them. Real estate investing isn’t for everyone, but for those with a will, there’s always a way.