If you’re choosing to finance a commercial property it can be a daunting process. Whether you’re a seasoned investor or just starting out, it’s easy to get overwhelmed by the industry. The first thing you need to consider is the type of loan you’ll be taking out to cover the property. Here’s a guide to commercial property loans that answers some of those key questions you might be facing.
What Are Commercial Property Loans?
Investing in a commercial property can be a smart decision, as they tend to generate higher returns, with other perks along the way, such as long leases. But at the same time, it’s also a higher risk investment, which can turn many off.
Commercial property is a building that houses businesses. The leases tend to be long-term in nature, as a business will rent them out with long-term intentions. It can also refer to large residential rental properties and any land being used to generate a profit.
It’s worth weight up both the pros and cons of residential property investments versus commercial property investors before taking out a loan. They are two very different types of investments.
- Residential property: it is a less risky investment, where you are simply dealing with tenants in a residential capacity. Of course, it also includes a lot of work. You need to research the popular areas and the prices they’re renting for and weigh this up against the cost of a property. You need to consider things such as how many bedrooms there are, along with other factors that would appeal to a potential tenant. The leases also tend to be short-term, which means you either have to go through the ordeal of constantly finding new tenants, or pay an agent to do it for you.
- Commercial property: there is a lot less to think about in this type of investment. It comes with more risks, but also more returns to make it worthwhile. You simply need to rely on the income statement that shows the value of the current lease, which can be compared to other commercial properties in the area. Leases tend to be long-term as well, saving you the hassle of searching for new tenants.
So, how can you take out commercial property loans?
Taking Out Commercial Property Loans
Looking at commercial property loans?
The first step is to seek professional advice about commercial property loans. They can be quite complex, so it can help to have a financial expert on your side when it comes to going through the terms of the contract and lease agreements.
Next, find the right lender for you. You want to shop around for the best interest rates while finding a lender that’s willing to take your individual needs into consideration. You want a loan that is tailored to you – rather than a generic one. You want to see your lender as a business partner who has your best interests at heart. Commercial loans are considered riskier investments and can come with higher interest rates – often these aren’t on display, so you may have to enquire with a few lenders before choosing the right one for you.
When filling out an application, the requirements for the application will vary from lender to lender. It’s important to have a thorough read through and make sure you have everything on hand before you go ahead.
Using A Bridging Loan
It sometimes occurs that you’re interested in buying a new property but are yet to sell your own. This is where bridging loans come in handy. Bridging loans can help you to finance your new property before you sell your old one. It means you don’t have to miss out on your dream investment property in the meantime.
The bridging loan is then used as a down payment for the new property and switch over into a new loan.
So how exactly does it work?
If you have an amount left on your existing loan (for example, $200,000) and the new property is $500,000, then you set up a short-term debt of $700,000. This becomes your peak debt.
Once you sell the existing property, you take away this price from your peak debt. The balance at the end turns into your new loan. You then have a standard commercial loan to repay.
Taking Out A Commercial Loan
Are you looking at commercial property loans? Speak to the professionals at ALC Commercial for the help you need. We offer a range of different loans to suit your needs, and also have bridging loans in place if you need to buy before selling your old property.
With flexible arrangements and a variety of different loans that can cater to the individual, there has never been a better time to take that big step and invest in a commercial property.
