Best Properties for Commercial Financing

Published February 17, 2012

If you are considering buying a commercial property as an investment and obtaining commercial financing, why not choose a commercial property type that will give you a much greater chance for success and also be easier to finance?

Let’s get right to the point. Having been a top producer of commercial loans for over 14 years, I can tell you that there are two commercial properties at the top of this food chain for obtaining commercial financing. They are apartment buildings and self-storage (also called mini-storage) units.

Why?

Because these investment properties have fewer moving parts, and also fewer criteria for qualifying for commercial financing. Let’s say you are interested in buying a strip mall or office building. Just like apartments and mini-storage, you have to find properties with decent occupancy, decent net operating income, are in good condition, and have a good history of occupancy. But in addition to these qualifiers, you also have to factor in the quality of the tenants and the remaining terms on their leases. And keep in mind that if your tenants happen to be a movie theater chain, a video store, or any national chain in chapter 11 bankruptcy, you likely will not be able to include the income from these leases on the rent roll for evaluating your commercial financing.

Another reason for investing in apartment buildings or mini-storage units is that they are easy and fast to rent. A shopping mall or office space can take an average of 6 to 12 months to find a tenant. Furthermore it can take several months or more to negotiate the leases, and the tenants will often need to build to suit. It takes less than a week to make ready an apartment unit, and with mini-storage you just have sweep the unit out to re-rent it — a much easier process, which makes obtaining commercial financing quite a bit easier.

Both apartments and mini-storage are in great demand today, as many people have lost their homes and have become renters. These same folks often have more stuff than their new apartment will hold—hence they need to rent a storage unit, as well. From reading this post, are you beginning to see why these types of properties can be a good selection for obtaining commercial financing?

By Terry Painter, President