Investors trying to get approved for commercial real estate loans may have a harder time in today’s property market. Commercial real estate has not experienced the same highs and lows of the residential property market, but it may still be difficult for every type of investor to find the right financing. Conditions have been improving for both buyers and sellers, but banks can sometimes be hesitant to provide financing to new or inexperienced property developers. If you’re trying to fund the purchase of your first investment property, you may need to look beyond a bank for cash. Some possible alternative sources of money may include funding with equity, capital from friends or family or mezzanine financing options.
Funding With Equity
Choosing to fund your commercial property purchase with equity can be a smart option for professionals without a lot of time in the industry. What you need is at least one property already in your portfolio that has equity. This property can be your own home as long as it has increased in value since your purchase. You can get up to 80 percent of the purchase value of your commercial property this way, making it a viable source of financing a new real estate opportunity.
Capital From Friends or Family
What many new investors decide when finding difficulty obtaining commercial real estate loans for an investment property purchase is to borrow money from friends or family. While some people may be uncomfortable with this option, you have to consider your other choices and your relationship with the person before going through with this possibility. If you can’t get financing any other way, and you’re certain you can make money off of your potential lead, you may be looking at a feasible solution.
Mezzanine Financing Options
Another way to get funding for your commercial real estate loans is by thinking about something called mezzanine financing. This type of loan guarantees your lender a piece of ownership if you don’t pay back your debt completely or within the time constraints detailed in your agreement. It can be a less risky way for a lender to dole out capital to new investors. Many property developers get this type of funding from venture capital groups that are seeking large returns back from their investment into your organization. If there is a default, however, your property is transferred to the lender.
The difficulty of finding a source for commercial real estate loans in today’s property market can be frustrating. It’s important to stay determined in order to find the best source of funding, so you can be part of this exciting industry.