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The Best Financing Options When Investing In Commercial Real Estate

September 03, 2018 by Boris Dzhingarov, Total views:
849

Whenever you want to buy or lease commercial real estate, you need to be fully aware of the different financial options that are available. The same thing goes for renovating or even moving into such properties. Always explore options that are right for the project you have. If you do not know what the best option is, it is always better to talk to a financial advisor or to a real estate agent that is experienced in servicing people in your condition.

The main financing options available for commercial real estate lease or purchase are:

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Commercial Real Estate Mortgage Loans

Because of the large financial investment necessary with commercial real estate, the mortgage loan is normally seen as the best financing option available. You do need to increase the possibility of being accepted though and interest rates can considerably vary from one lender to the next. However, many other terms have to be considered. This does include amortization period, loan-to-value ratio and loan repayment flexibility.

Remember that banks can roll some renovation costs into mortgage loan. This is especially the case when property value is added. Take advantage of this possibility whenever you can.

Working Capital Loans

These are shorter-term loans that are normally amortized in around 5 years. You use them in order to pay off investments during business growth phase. Since buying commercial real estate is often a part of growth, the working capital loans are available.

As an example, such a loan can be used in order to be sure that there is no cash shortage that appears as the office is moved to larger space. It is often seen that the business underestimates renovation and moving expenses. When this happens, the working capital loan helps. Generally, this is a loan type that is unsecured.

Leasehold Improvement Loans

This is another short-term loan option that is amortized in around 5 years. You take it out in order to pay for some renovations you do for space that is leased. Based on improvement value, the bank can accept the actual improvement as being collateral. This is preferred since the interest rate becomes lower than what we would see with unsecured loans. Principal holidays can be negotiated, generally up to 12 months.

Demand Loans

Demand loans do not have a maturity date that is fixed. They can be renegotiated when the situation of the business changes. You thus gain access to extra flexibility. The loans can be paid in part or in full at any point in time, without extra associated penalties. Also, lenders might require loan repayment when they want to. This loan type is useful when paying for moving, covering temporary cash problems or when buying business equipment.

Final Thoughts

As you can see, there are different financing options you can consider when investing in commercial real estate. Besides those mentioned, others do exist. Be sure that you are informed and that you are aware of all the options you now have access to since all have advantages and disadvantages, being better suited for specific situations.

5 / 5 ( 1 vote )

Boris Dzhingarov September 3, 2018
This entry was posted in Real Estate Investing and tagged Commercial Real Estate. Bookmark the permalink.

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