Adding commercial real estate investments to your portfolio will be one of the more lucrative real estate investments you’ll make. Owning income producing real estate can come with some issues if you do not do your due diligence. We will discuss a few of the biggest problems associated with commercial real estate investment loans.
You may have heard this before, “location is king.” The top property locations are always in high demand. A savvy commercial real estate investor is always looking for the right location as well as future developments in the area and improvements. The piece of real estate should be highly visible, preferably in an area with a lot of traffic. With a great location, you will gain tenants who will want to pay top dollar to be there. Potential tenants want to be in an area where they can attract new customers and clients depending on the type of investment property you are purchasing.
There are several types of commercial real estate, such as office, retail, industrial, multifamily, and special purpose properties which include self-storage, car washes, and churches. Choosing the correct investment for you will be crucial. Do you purchase a Class A office real estate property or go after the Class C building that is priced way below market but has future developments planned? Investment groups often invest in their one niche and then venture off into different property types and classes. For example, a business owner of multifamily investments who diversifies his holdings to Class A and Class B office and retail properties.
Another issue with commercial real estate investment loans are the rates. Typically, lenders or investors will charge you a premium for investment properties. This is due to the fact that they favor owner-occupied commercial real estate. When it comes to commercial real estate financing, the lower the loan-to-value (LTV) the better for financing. The lender or investor views it as less risky if you have more skin in the game. With so many lenders out there, it is difficult to gauge who has an appetite for what. However, the rate is a good indicator of how aggressive the lender or investor will be for your property type.
Finding the right lender or investor is a problem you may face while obtaining financing. Different lenders have appetites for various types of commercial real estate. For example, one lender might need to fill his multifamily portfolio while another may have an appetite for a Class A office building. It is difficult to find the best lender for your specific asset class without going to five or six different financial institutions. We have advised several clients to use Magilla Loans, a fast, anonymous, and free search engine for commercial real estate loans. It is simple to use, just answer a handful of questions and receive multiple loan proposals. Above all, Magilla Loans is absolutely FREE.