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How to Raise Capital to Buy Commercial Property

There are many ways to raise capital for buying commercial properties. Generally speaking, you can structure financing however you choose.

But you need to know why you?re buying.

If your goal is to purchase the property, repair or rent it and quickly resell it, you will want a loan with very low closing costs. The interest rate doesn?t matter because you won?t be keeping the property long enough for a low interest rate to save you money. You are looking to get into the property for as low an upfront cost as possible to maximize your profit when you sell it.

Conversely, if you plan to hold a property for the long term, you?ll want a low long-term interest rate; over the course of 15 years, you?ll save hundreds of thousands of dollars in loan payments and build your equity faster.

Now that you know the type of loan you need, you can shop for the best financing option from traditional and non-traditional lenders.

Traditional lenders

Traditional lenders are standard banks and financing institutions. They have enormous assets behind them and loan money for all types of commercial transactions.

With traditional lenders, your own personal credit and the property?s location are not major factors in determining if the property qualifies for a loan. Unlike residential real estate, commercial property values are based on their cash flow and ability to produce income; lenders want to see that the property generates enough income to cover its expenses and carry a mortgage as well.

Net operating income (NOI) is king when it comes to making these determinations. Your own personal credit history is secondary along with the actual location of the property.?

Non-traditional lenders

A non-traditional lender is anyone who is not a traditional lender, including the property?s owner, a private investor or a family member.

This type of lender does not come under the guidelines of standard commercial lenders. Loans by non-traditional lenders usually comprise some form of creative financing.?

Creative financing is anything you want it to be.

For example, you can assume the property?s existing mortgage, meaning you take over the current loan payments. If interest rates are high and the existing loan is older with a lower interest rate, this would be a great way to get a lower rate than would be otherwise available.

In other examples of creative financing, the seller can hold a first or second mortgage, or a private investor can provide a bridge loan for a short period of time until you can get traditional financing.

In a wraparound mortgage, you give the lender a lien on a piece of property you already own as additional collateral for the loan on the property you are purchasing, providing him or her with added security.

The best place to find both traditional and non-traditional financing is through a qualified commercial real estate agent. The hard part of commercial real estate is finding the profitable deals. Once you have that, then the financing is out there.

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Luke LeGrand, ePRO 210-843-5853

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How to Raise Capital to Buy Commercial Property

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Source: http://kwcommercialsa.com/blog/?p=6945

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