Virtually all investment advisors recognize the value of owning property. While your home may be your largest investment, you may be thinking about expanding your portfolio to include commercial real estate. Of course, unless you are independently wealthy, you probably need to finance the purchase of commercial property. Here are some essential facts every investor should know about commercial real estate financing.
Commercial Loans Are Different Than Residential Ones
When you bought your home, you likely secured a conventional 30-year mortgage. To comply with loan terms, you make monthly payments. While these payments are interest-heavy at the beginning, you pay off the entire loan by the end of its term. Commercial loans do not usually follow this format, however. Instead, they are often shorter than residential loans. In fact, most range from fewer than five years to 20 years. Also, you don’t typically pay off the entire loan in monthly payments. On the contrary, you should expect to make a substantial balloon payment at the end of your commercial loan.
Commercial Loans Come in a Variety of Forms
If you are looking to secure commercial real estate financing, you have some options. Perhaps the most popular type of commercial loan is a traditional loan from a bank. With this type of loan, you may receive a low interest rate. Nonetheless, to compete for a bank loan, you probably need to have both excellent credit and some collateral to offer.
If you plan to build, a construction loan may be a better option. These short-term loans give you the capital you need to complete construction. Be careful, though, as banks usually do not dispense construction funds in a lump sun. Instead, they wait for signs of progress to release money.
When bank or construction loans fail to meet your needs, you need to look elsewhere for commercial financing. A new and popular approach to buying commercial property is crowdfunding. Through this process, you use an online platform to raise money from the public. Depending on the type of business you intend to conduct, you may also qualify for a grant or Small Business Administration loan. Plan to do some research to determine if you qualify for these programs.
While it may seem complicated, commercial real estate financing is not impossible to understand. Once you figure out the basics, you are likely to be well on your way to securing a piece of commercial property and expanding your investment portfolio.