Graduating from Residential to Commercial Realty Investment (Part 2)
March 17, 2015
Many people contact us wanting to get a commercial loan and they need to know the requirements for getting a commercial loan for commercial property. If they are not strong financially with strong enough net worth and liquidity they can be disappointed when they find out they don’t qualify.
Those who have residential investment experience though, are a step ahead because they will have some understanding of the mortgage loan process for an investor – even though commercial loans are more complex – and in general you need to have greater strength financially to qualify for a commercial loan.
Last week the financial requirement was emphasized in qualifying for a commercial loan.
As a rule, people who invest in commercial property tend to have some significant wealth. To be a residential property investor you do not need to have significant wealth.
One area not discussed last week is that to purchase commercial property, not only do you need to have enough money for the down payment and loan expenses, but you also need to have money for reserves. The point here is that the reserve requirement could be large, depending on the property.
Money for reserves means that you have money in an account to cover things like needing a new roof, new wiring, plumbing repair, etc. Such items can be costly.
The lender wants investors to have enough money to cover maintenance, repair, etc., because if the investor can’t cover such things, he is in danger of losing the property.
When you graduate from residential property ownership to commercial property ownership, you typically will have a big learning curve.
This is related to the problem that a number of aspiring new commercial investors have is that they don’t understand that owning commercial property is a business just like owning a restaurant is a business. It takes study, mentoring, and experience. Some people might think that all you have to do is hire a property manager – then sit and make a lot of money.
Not so. You actually need to manage your property manager. There have been examples where a property manager didn’t fulfill their role well and the investor lost lots of money or even the property. There are other areas of knowledge needed to succeed in commercial property investment – selecting a good property, purchasing at a good price, negotiating, managing finances and profit, etc.
Contact us if you would like to see if you pre-qualify for our best commercial loan rates and terms – or contact us if you would like to discuss your particular commercial loan concerns. Dial 214-695-7310 or email info@businessloanstore.com
To discover more about our loan products and rates, see our loan programs page.
Bruce Painter, Director of Marketing, Business Loan