The real estate market is a competitive one, and buyers need to have money ready to go when property becomes available. At the same time, not all commercial real estate loans are created equal, and some can cause more trouble than they’re worth. Make sure you know exactly what type of loan you’re applying for, and consider these five options when you’re looking to invest.
1. Construction Loans
The main benefit of this type of loan is that it accounts for the future value of the property. Many banks will lend against land that they undervalue because they don’t factor in improvements. If you’re able to get a construction loan, your design and concepts can help improve the terms.
2. Bridge Loans
A bridge loan works specifically for a commercial real estate investor who’s caught between two properties. If you’re in the process of fixing up a commercial lot when another becomes available, you can use this loan option to get the money you need to buy the second lot while using either property as collateral. The interest rates with bridge loans is typically high, but the idea is that you’ll pay the lender back immediately after finishing the first project.
3. Hard Money Loans
This option, as with bridge loans, pays out pretty quickly and helps investors jump at a property when it becomes available. Hard money is usually lent by private lenders, which allows the cash to be advanced more quickly. The purchased property often serves as collateral and interest rates may be excessive. Nevertheless, if you’re looking to buy a recently foreclosed commercial space, this option can provide the money you need in a hurry.
4. Commercial Real Estate Purchase Loan
Perhaps the most basic option, a purchase loan will use the property as a guarantee and also base the amount on the value ratio. For a standard purchase that doesn’t need to be done in a hurry, this is probably the best loan type.
5. Permanent Loan
This is only a good option if you’re one of the few that qualify. A standard bank loan will give you decent terms and an extended repayment period, so long as you have the credit score and cash flow to get approved.