Is your real estate investment business outgrowing conventional loans? It may be time to explore commercial real estate loans as an option.
Commercial loans are more flexible than conventional loans. They can help you grow your residential portfolio much larger than most lenders allow. Plus, they can open the door to exciting investment types beyond single-family homes and condos.
In this article, we’re going to give you a crash course on commercial loans. We'll look at what they are, the pros and cons, and how to get one.
As the name implies, commercial loans are mortgages designed for commercial real estate. This includes properties like large apartment buildings, storefronts, offices, and hotels.
Commercial loans are also a good option for portfolios of residential properties. If, for example, a lender will not approve a conventional loan for a sixth income property, you could potentially buy the property with a commercial loan. You may even be able to refinance your individual properties into a single commercial portfolio loan.
Commercial loans and residential loans are different in several notable ways:
Commercial loans come with several benefits and disadvantages that any investor should consider.
If you're ready to apply for a commercial loan, it's a straightforward process. Here's how you can apply it in five simple steps:
What type of property are you looking to buy? How long do you plan to hold it? Are you looking for the lowest possible interest rate? Or would you be willing to pay a higher rate for a lower down payment? What is your exit strategy? Getting clear on these goals will help you decide on a loan type and a lender.
As with home loans, there are several types of commercial loans. You might look into:
You can always work with a real estate agent to find properties on the open market. But, if you’re looking to score a great deal, you might want to search for off-market properties. Fewer buyers will be competing for these deals, so you have an advantage in negotiations. With real estate investment software like PropStream, you can locate distressed properties off the market and reach out to the owners directly.
Take the time to compare lenders to find the best interest rates and the best terms for your needs. You might want to look for a lender while you look at properties. This way it won’t hold up your deal. But, you don’t want to choose a lender too early because terms like interest rates could change.
As with any loan application, you’ll need to qualify based on factors like credit and income. Whether you’re going to apply as an individual or as a business entity, you’ll need to have your financial documents in order. Then you can apply for your loan.
If you’re looking to buy commercial real estate or grow your residential investment portfolio beyond five or 10 properties, a commercial loan may be the best option for you. Just consult with your accountant or financial planner to cement your financing strategy. And make sure to spend time shopping lenders to find the best rates and terms.