Commercial Real Estate Investment
Commercial real estate investment is an exciting industry for entrepreneurs or small business owners to be a part of. Whether you’re buying rental properties, leasing your business location or looking to start a new business with prime real estate, you’ll need to consider your financing options.
If you’re ready to get started in the industry and receive competitive funding, here are three key pieces behind every real estate investment:
1. Discover the Optimal Loan Term
Every financing option comes with a term. The loan term will determine how long you’ll be paying back your loan. There are two basic types of loan terms to be familiar with. The first is a traditional amortized loan. Private loans and residential mortgages use this fixed payment method to repay debts. However, commercial loans can also have a balloon loan term. Under these conditions, you’ll still pay a fixed set of monthly payments for a predetermined amount of time, usually 10 years. Then, you’ll need to repay the rest of the debt in full. Balloon loans aren’t designed to repay the debt completely through monthly installments, so you’ll need to save up additional cash throughout the loan term.
2. Choose Low Interest Rates
Interest rates are one of the most important aspects of a commercial mortgage and often the most familiar to borrowers. This is the percentage at which your loan will grow over time, depending on several factors. Typically, borrowers with excellent credit scores, substantial down payments, and shorter loan terms can secure much lower interest rates, saving significantly over the life of the loan.
However, interest rates aren’t determined by these factors alone. The type of commercial real estate you’re purchasing also plays a key role. For example, properties like office buildings or retail spaces might have different rates compared to warehouses or multifamily units. Additionally, the lender’s assessment of market conditions, property location, and your business’s financial health can also influence your rate. Understanding these details is essential to securing the best terms for your commercial mortgage.
3. Research Closing Fees
An often overlooked aspect of every commercial real estate loan is the additional fees, which can vary significantly depending on the lender and loan type. These fees are essential to understand, as they can greatly impact the overall cost of your purchase. Common fees include those for the loan application, property appraisal, and inspection, as well as title insurance and various legal expenses.
In some cases, lenders may also charge origination fees or prepayment penalties, so it’s crucial to review your loan agreement carefully. Together, these closing fees can add up to 2% or more of the total loan amount. Budgeting wisely and comparing loan offers with transparent and affordable closing costs can help you avoid surprises and make a well-informed financial decision. Taking the time to understand these fees upfront ensures smoother transactions and helps you plan more effectively for your commercial property investment.
Have more questions? Common Sense Capital Solutions is here for YOU! Reach out to us today at (513) 570-5777 and let’s chat about what’s right for you and your business.
