Understanding your options as a commercial real estate investor is what it's all about! There are many income producing commercial real estate properties that are offered below the market that are great investment opportunities. The problem or obstacle for most real estate investors when buying these properties is the down payment needed to acquire them. As a rule, the general rule for revenue generating apartment buildings and mixed-use multifamily housing is that one must be willing to pay 25% to 35% of the purchase price as down-payment.
In addition, the investor should have closing costs and reserves to cover six months or more. This specifically is a huge investment that drives out many potential buyers. Often, this can be overcome by the following creative financing strategies for commercial real estate investors.
- This is a highly confusing concept in real estate. My simple definition has two parts. Creative Financing requires a property with substantial equity and a willing and motivated seller. In the event that the seller is motivated yet there is no equity there is usually no possibility to employ creative financing strategies to acquire the properties. Similarly, if the property has sufficient equity and the seller is neither willing nor motivated, no strategy will work.
3 Creative Strategies to Purchase Commercial Real Estate
- 1. Seller financing and / or Carryback: There are many ways to get a deal where the seller can finance the property or hold a second mortgage for a short time and then the buyer can refinance the loan. Many lenders require the loan to be one or two years seasoned. Yet there are lenders will refinance immediately without using this criteria. These deals close within 3 to 6 months after the original seller financing contract.
- 2. Transaction funding programs: They are programs in which a private lender will fund the loan from one to forty - five days. The key is to have a buyer ready to close immediately or even to have the ability to refinance simultaneously. This only works if the end lender knows the transactional financing and requires no seasoning. As with option 1 above, most lenders require one or two years of ownership seasoning so having the proper end lender is important.
- 3. Downpayment Assistance Program: If the house has equity and owner is prepared to put it to use to help the buyer get the home, a downpayment assistance program much like Ameri-Dream or Nehemiah (programs used to acquire residential properties financed by FHA lending options) may be considered a great option for you. Ultimately, the Downpayment Assistance Company (DPA) provides the downpayment and the owner reimburses the company at closing. This may only happen when there is substantial equity in the building.
Creative financing requires substantial equity in the commercial income producing property that the owner is eager and motivated to utilize to strategically sell their property at the earliest opportunity. You can hire a specialist help you structure your offers to make sure they close.
Recommendations On Getting Loan Products For Commercial Real Estate
- 1. Find a lender and comprehend what he is looking for: Individual lenders give a decent alternative to financing. They have some additional cash in the bank which pays them with next to no premium. Along these lines, they need to put resources into real estate to get more profit for their cash. Since these individuals are occasional lenders; it is relatively simpler to deal with them regarding the terms and conditions of the credit.
The moneylender, hence, is a basic piece of financing. A proper moneylender can serve as a blessing and a troublesome one can give you real headaches. He would agree to finance your project if he can feel himself comfortable with you and if you give the impression of being motivated.
The lender will show his mortgage approval via an official document called a "commitment letter". All the indispensable terms and conditions regarding the loan would be mentioned in the document. It is consequential that you read every detail of it and understand it, so that if any point bothers you, you can negotiate with the lender before going further.
Your credit rating is very important in winning your lender's heart. Moreover, you should intimate him about your future investment, as to assure him that there are no chances of default. He would also want to know your proposed plan for the repayment of the loan.
- 2. Property location matters: Good location of the property is important before knocking the hinged door of any financing avenue. Any lender would wish to know the market price of the house, size and condition of the house and its location. If these things work in your favour, then your lender will be satisfied since there will be low chances of default. If you are sincere towards the job while having a brilliant working plan, then any loan merchant will be ready to finance you.
- 3. Start small: A number of commercial real estate financing recipients have committed to office complexes and/or storage area facilities for a couple of reasons: continuous cashflow, zero-maintenance, and the capability to build equity for future efforts. These kinds of contracts are categorized as the group of small business loans, the term small may be slightly deceptive. The thought of getting started small is a noble concept; however, semantics has little or nothing in connection with actual income that makes it possible for expansion. In such instances, construction loans are suitable for progress and bigger business overall.
- 4. Use a business loan calculator: Familiarize yourself with a business loan calculator, which can help you get a grip on finances for your new business. Office building and / or warehouse owners opting for adjustable rates are likely to see their numbers fluctuate a bit more than those who have signed tariffs for fixed business loans. Anyway, with access to an online business loan calculator, you can always keep things under control.