3 Things To Consider When Getting a Commercial Real Estate Loan

Getting involved in the commercial real estate industry can be a fantastic way to supplement a day job or make a living as a main job. However, most people do not have the funds necessary to purchase real estate outright. Obtaining a loan for a commercial property is different than getting a traditional mortgage, but it is not impossible.

1. Property

The types of property that fall under the commercial real estate umbrella vary from single-family homes to large apartment buildings to retail or industrial facilities. Because of this, it is important to take the exact type of property into account when applying for a loan. The location, size, condition, and income potential of the property will be assessed by lenders before a loan is granted. If the property is in poor condition and it is unlikely that investors will turn a profit, lenders will be wary.

2. Trends

The market can fluctuate widely based on a variety of factors. The popularity of the area, economy, and viability of local businesses can impact market values. For example, a thriving city filled with a plethora of different companies can survive if one sector experiences a hit. However, a town with one main source of income, such as a manufacturing plant, can be seriously affected if the plant closes. If the investor is purchasing a building to lease it to gym owners, they should choose an area that is not saturated with fitness centers. Investors should monitor trends in the industry as well as changes in the local area.

3. Type of Loan

There are several types of loans available to investors who want to purchase a property. Before deciding which type of loan is best, investors should research the pros and cons of each kind and determine which one is best for the situation. The basic options are traditional bank loans, lines of credit, SBA loans, and asset-based lending.

Traditional bank loans typically have a lengthy approval process and require the borrower to have good credit and provide documentation. Lines of credit have similar requirements to traditional bank loans and can be great for investors who need more flexibility.  SBA loans help new investors by providing a guarantee to lenders, mitigating some of the risks involved. An asset-based loan often involves collateral and can provide funds more quickly than other types of loans.

Obtaining funds to invest in commercial real estate may not be easy, but it can be worth the effort. Investors who need funds should consider all the aspects involved when applying for a loan.