Commercial real estate (CRE) includes apartments (over 5 units), offices, retail space, industrial complexes and other such buildings.
Commercial real estate investments can earn money through income or appreciation. Income is produced through the operation of the building, often through tenants making rental payments, while appreciation is earned through an increase in the property’s value over time.
Commercial real estate investing normally requires more capital, expertise, and time than residential investment properties.
Financing Options Available
Conventional Bank Loan: A majority of commercial real estate loans are made by banks, who prefer to lend to entities with strong credit histories. Individuals with a credit score of at least 660 and are working with mid-to-large-sized projects will find conventional bank loans as a viable commercial real estate financing option. Bank loans offer competitive interest rates and do not require the property to be occupied by the owner. However, most bank loans require a 20-25 percent down payment and oftentimes will charge a penalty if the loan is paid off early.
Fannie Mae Multi Family – The Fannie Mae DUS Multifamily Loan program is one of the single largest sources of capital to the multifamily housing market. The Fannie Mae Multifamily lending platform provides financing for the acquisition or refinancing of multifamily properties, including, 5+ unit apartment buildings and multifamily properties, seniors housing, student housing, cooperatives, affordable housing and manufactured housing communities and mobile home parks.
Hard Money Loan: For investors looking for a quick solution to commercial real estate financing may look to a hard money loan. Hard money lenders usually offer short-term loans at high-interest rates, and evaluate the loan based on the perceived value of the property and not on the borrower’s credit history. Investors will often utilize hard money loans to quickly finance deals in the interim while negotiating a longer-term bank loan. Because of this, hard money loans are also referred to as “bridge loans.”
Joint Venture Loan: In cases in which an investor cannot obtain commercial real estate financing, or in cases where it is unappealing to bear risk solely, pursuing a joint venture may be the best option. Two or more properties can apply for financing via a joint venture loan, and involved parties will equally share the risks and returns in the commercial property. The joint venture loan ties the parties together solely around the specific property and does not require the entities to enter into a true real estate partnership.
The Handbook Commercial Real Estate
How much of a down payment do I need for an investment property?:
20-25% of the purchase price, very rarely can you get anything less than 20%
Can I get a commercial loan for a single family or less than 4 unit property?
Yes you can. Always try to get a residential loan for under 4 units to get a 30 year mortgage, but if you have over 10 properties or over 4 units, you have to go commercial.
What type of experience do I need to purchase a commercial investment?
There is nothing set in stone as every bank is different. If you have never had any rental properties and you are going into commercial…No. If you have a few other single-family rentals or another commercial property then…yes.
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