The Basics of Commercial Real Estate
If you’ve considered diversifying your business’s investment portfolio and getting into commercial real estate, you may be wondering how the purchasing process works and what you can do to afford the property you want. While commercial properties often appreciate and may bring good return on investment in the long run, affording properties from the outset can sometimes present a challenge. Thankfully, there are financing options available to help you purchase your desired property. If you’re interested in learning more about buying real estate and the commercial financing process, here are a few essential facts to keep in mind.
There Are Several Loan Options
While you might think that a commercial loan would provide limited options, there are actually several types of loans you can choose from. Some of the more popular ones include:
- SBA loans
- Conventional mortgage loans
- Hard money loans
- Bridge loans
In some cases, you may be able to find a lender that offers loans tailored to the type of property you’re purchasing. For instance, if you want to buy a space that you plan to lease out as a medical office, it’s possible to find a lender who’s worked with medical spaces before.
Your Company Size and Age May Matter
Due to their cost and nature, commercial properties may be more difficult to purchase than residential ones for some businesses. Commercial real estate loans are only granted to business entities, and your company size and age may come into play in the lenders’ decisions. For example, many lenders want to see that you’ve been in business for at least five years or more, and that you’ve been profitable for at least the last two of those five.
Prepare Your Down Payment Early
Finally, although a loan allows you to spread out the financial burden of purchasing a property, you’ll still need to be liquid enough to cover a hefty down payment up front. Many conventional mortgages, for example, require at least a 25% down payment in order to secure a fixed-rate loan. Additionally, commercial payment schedules may be more aggressive than residential ones, with many terms lasting five to ten years.
While commercial real estate tends to gain value over time and may make a strong choice for diversifying an investment portfolio, affording a purchase outright can sometimes be difficult even for investors or businesses with relatively deep pockets. The good news is, there are several financing options available to help you purchase the property you want. If you’re interested in buying commercial property but aren’t sure how to get started, keep these key facts in mind and you can navigate the process with confidence.