Commercial Real Estate loans are an important tool to understand when it comes to buying, investing in, or selling commercial properties. Learning how to utilize this tool can be extremely valuable in your commercial real estate journey. We’ll cover the basics, such as what a commercial real estate loan is, what types of properties you can use a commercial real estate loan to finance, how to get started in the commercial real estate industry, and even tips on finding a buyer for your commercial real estate property.
What is a commercial real estate loan?
A commercial real estate loan is similar to a mortgage and it is used to finance various aspects of commercial real estate such as: construction of a commercial property, renovating a commercial property needing improvements, purchasing already existing commercial property or land, and even refinancing an existing commercial real estate loan. In these types of loans, the commercial property serves as the collateral for the financing.
Who offers commercial real estate loans?
There are many people and institutions that offer commercial real estate loans and who you look to for funding really depends on your situation and what you’re trying to accomplish with your commercial real estate property. For example: someone might look for a bank or credit union to obtain a commercial real estate loan similar to a mortgage. Going to a private lender such as Ignite Funding for more flexible terms and faster loan approvals is another option. Each option has both pros and cons, so regardless of the method you choose to seek financing for your property it is important to evaluate the market/property, your end goal, and how you plan on exiting the commercial real estate loan to make a decision that lines up with your goals.
What should I look for in a commercial real estate loan?
Every commercial real estate loan is unique based on factors like the location, your history, the property, and your ability to exit the loan (or repay it back). Despite each one being unique, there are some common factors that are important to pay attention to when looking at different ways to secure financing for your commercial real estate property. While there are different people and institutions to choose from, they often vary in details like their terms (the length of the loan), interest rates on the loan, fees you might have to pay on the loan (such as origination fees or prepayment penalties), or their requirements for both the property and your history in the industry. Analyzing your situation, the property, and what you want to accomplish with the commercial real estate loan is crucial when you look to obtain financing.
What types of commercial real estate can I obtain financing for?
There are many different types of properties that you can obtain commercial real estate loans for, and each one serves a unique purpose. Most commercial real estate properties can be broken down into a few different categories.
- Office Buildings for businesses to operate
- Retail, including stores, restaurants, and shopping centers
- Industrial buildings such as warehouses, storage facilities, manufacturing and assembly factories
- Multifamily buildings with multiple residential units like apartment buildings
- Special Purpose properties including schools, hospitals, hotels, or churches
- Mixed-Use properties that might have retail on the ground floor and residential units on the upper floors, or an office building with a restaurant
- Land to develop or construct commercial properties.
Each type of commercial real estate has an important role in the industry and can offer great opportunities for you to build your portfolio or increase your ability to profit from your investment.
This all sounds great, how do I get into commercial real estate?
We get it, commercial real estate can be an exciting investment opportunity. Before jumping the gun and entering a situation prematurely the most important things you can do are market research and building your knowledge. If you’re new to commercial real estate, starting off by building your knowledge of the industry can be extremely helpful. Some experts will go as far as to say the best way to build your knowledge is to begin working in the commercial real estate world. Working in the commercial real estate industry and immersing yourself in all the information is sure to build your knowledge quickly, but don’t worry this can all still be accomplished without having to go and quit your day job.
Some of the most popular ways to build your knowledge in the commercial real estate industry include attending seminars or workshops, following news outlets specializing in commercial real estate, reading books or blogs by experts in the industry, listening to popular podcasts covering topics of commercial real estate, and networking with others in the industry. Surrounding yourself with the information while understanding the different types of commercial real estate and industry terminology in great detail will significantly help in your ability to conduct market research to make informed and strategic decisions when it comes to executing on commercial real estate or utilizing commercial real estate loans.
Commercial real estate isn’t something you can just learn and be done. With so many types of commercial real estate and the constantly changing markets you’ll need to always stay up to date on new information and market trends for your best chance of success. Market research includes researching how different types of commercial real estate are performing not only across the country, but in specific areas you are looking to enter, allowing you to make a strategic decision with your property. If you’ve ever known someone with experience in commercial real estate you’ve likely heard them say “location, location, location”. Market research will be different in each location you look at, but while researching markets consider factors such as:
- Demand for the type of commercial real estate
- Property values of recent and past sales to understand trends
- Economic factors of the local economy
- Local regulations and policies that will impact your property
- Location of the property in the market and its accessibility
All of these factors will help you understand the risk and potential of your type of commercial real estate property, which will directly assist you in making an informed decision when it comes to securing a loan to finance your commercial real estate project. Once you’ve built your knowledge and understand the market you are trying to enter, the next step is to find a property that meets the criteria you’re looking for. You will need to utilize tools such as commercial real estate loans to start executing your plan on how you’d like to utilize the property to earn a return on your investment!
Do I have to buy a property to get started in commercial real estate?
While utilizing a commercial real estate loan is a popular method to obtain a commercial real estate property, owning your own commercial real estate property is not the only way to get started in the industry. There are various investment options that allow you to invest funds and learn about the commercial real estate industry while building your knowledge and learning about market research. Options such as Real Estate Investment Trusts (or REITS) allow you to invest in portfolios of commercial real estate assets while earning a return on your investment. This is usually largely tied to the performance of the property, such as collecting rent. Another option is trust deed investments, such as the ones Ignite Funding offers, which allow you to act as a lender for a commercial real estate loan among other investors. Since this is a debt investment on a loan, your return comes from the interest being paid on the loan instead of the performance of the property. These methods still require your research into the company providing the investment as well as the properties to help you make an informed decision.
How do I find a buyer for commercial real estate?
So, you’ve built your knowledge, researched the market, and even acquired commercial real estate property using a commercial real estate loan. Now the question stands, how in the world are you supposed to find someone to buy this property from you?
There are many different avenues people and businesses utilize to sell different types of commercial real estate, and each one can offer a unique advantage. One of the most common ways to find a buyer, especially for those new in the industry, is to utilize a commercial real estate broker. Commercial real estate brokers offer a wealth of knowledge in the industry to help you best understand market knowledge even further. They can even help you analyze the right strategy to price your commercial real estate property while handling negotiations from the buyers. Many commercial real estate brokers have access to a network of potential buyers which can help streamline your process of selling a property.
You don’t have to always rely on a broker though. In the rapidly evolving digital age online portals have risen in popularity for sellers to list their properties while giving buyers the opportunity to directly communicate with sellers in a user-friendly environment. While listing on these different online portals, be sure to include important market research information so the buyers can make informed decisions themselves. Expect negotiations, which is where your market research comes into play to make sure you get a price you’re comfortable with. Websites like LoopNet allow you to list the property by location and even includes the option to list the property for auction or include virtual tours, giving you multiple opportunities to secure a buyer in a way you see best fit.
If you did your homework in building your knowledge, you probably had the chance to network with many others in the commercial real estate industry. This network across social media platforms or online forums can be a strong opportunity for you to find a buyer as well. You never know who your next buyer is going to be, so as you meet others in the industry be sure to learn what they might be interested in or looking for. Building your network will help get exposure to the different types of commercial real estate you’re looking to sell. Learning more about your network will help you target specific people you should reach out to when your next deal is ready to go. No one said you must only use one of these strategies to find a buyer for commercial real estate. In fact, many utilize all 3 and more to open as many doors as they can to buyers.
In Conclusion
Commercial real estate loans are crucial to the industry, both for buyers to finance their properties and for lenders to earn interest. Which type of loan or lender you utilize is dependent on many different factors, which is why building your knowledge and understanding the varying market trends of commercial real estate can help you best make an informed decision.
Your pursuit of knowledge doesn’t end once you’ve acquired the property. Being able to keep the commercial property performing or looking to sell the property to exit the loan still requires market research to help execute the goals you’re looking to accomplish. Commercial real estate can be a successful industry to venture into, just be sure you’re always making an informed decision.
