Things To Know About Financing Commercial Real Estate Investments

Many savvy investors have long known that investing in real estate is a great way to build wealth while also generating a monthly cash flow. While investing in residential real estate can lead to good results, investors with a bit more capital turn towards commercial real estate investments, since these tend to be more lucrative in both the short term and the long term.

If you're interested in investing in commercial real estate, continue reading to learn more about commercial real estate investment banking services and what you need to know to secure financing to purchase commercial real estate.

Decide How to Finance Your Commercial Real Estate Investment

One of the first things that you need to do is determine if you are going to finance your commercial real estate investment as an individual or an entity. Most commercial real estate is purchased by corporations, developers, or business partnerships. However, it is possible to finance a commercial real estate loan as an individual. One thing that you must consider if you are financing as an individual is the fact that a commercial real estate investment service may require you to guarantee the loan if you don't have a certain amount of capital on hand. 

Understand That Commercial Mortgages Are Different Than Residential Mortgages

If you own a home, you are most likely familiar with the residential loan process. When you're getting involved in commercial real estate investments, it is important to know that commercial mortgages differ from residential mortgages in several ways. Since commercial mortgages are not backed by any government agencies, interest rates are almost always higher than residential mortgages are.

The terms of a commercial mortgage also tend to be quite a bit shorter than a residential mortgage's. Thus, you need to have a solid plan for being able to comfortably afford a commercial mortgage payment that can be quite large, since it must be paid off in a shorter amount of time.

Plan on Having a Large Down Payment

A commercial real estate investment banking service will consider loan-to-value (LTV) ratios when lending money. This means that they compare the size of the loan to a commercial property's appraisal value. If you want to invest in commercial real estate, you are extremely unlikely to secure a commercial mortgage that will cover the whole price of a piece of property. Thus, you will need to have a large down payment available to meet the lender's LTV requirements. 

For more information, contact a company like Southwind Capital Partners.