How to Finance a Commercial Real Estate Purchase
Commercial real estate can be a great investment opportunity, but it also comes with a significant price tag. The cost of purchasing a commercial property can be daunting, but there are several options available to help finance your purchase. In this blog post, we will explore the different ways you can finance a commercial real estate purchase, including traditional and alternative options.
Traditional Financing Options
- Conventional Mortgages
Conventional mortgages are the most common way to finance a commercial real estate purchase. These loans are offered by banks and other traditional lenders and are typically based on the property's value and the borrower's creditworthiness. Conventional mortgages usually require a down payment of 20-25% of the purchase price and have a repayment term of 10-30 years.
- SBA Loans
The Small Business Administration (SBA) offers a variety of loan programs that can help small business owners finance a commercial real estate purchase. These loans are backed by the government, which makes them more accessible to small business owners with limited credit or financial resources. SBA loans typically require a lower down payment than conventional mortgages and have a longer repayment term.
- Commercial Mortgages
Commercial mortgages are similar to conventional mortgages, but they are specifically designed for commercial properties. These loans are typically offered by banks and other financial institutions and are based on the property's value and the borrower's creditworthiness. Commercial mortgages usually require a down payment of 20-25% of the purchase price and have a repayment term of 10-30 years.
Alternative Financing Options
Crowdfunding is a relatively new way to finance a commercial real estate purchase. This method allows multiple investors to pool their resources together to fund a project, such as a commercial property purchase. Crowdfunding platforms, such as RealtyShares and Fundrise, allow investors to invest as little as $5,000 in a commercial real estate project.
- Hard Money Loans
Hard money loans are short-term loans that are based on the property's value, rather than the borrower's creditworthiness. These loans are typically used for flipping properties or other short-term investments and are offered by private investors or hard money lenders. Hard money loans typically have a shorter repayment term than traditional mortgages and require a higher down payment.
- Joint Ventures
Joint ventures are a way to finance a commercial real estate purchase by partnering with another investor or business. This can be a great option for those who don't have the resources to purchase a property on their own. Joint ventures typically involve sharing the profits and losses of the property and require a clear agreement between the partners.
Financing a commercial real estate purchase can be a daunting task, but there are several options available to help make it possible. Traditional financing options, such as conventional mortgages and SBA loans, are a great way to finance a purchase, but alternative options, such as crowdfunding and joint ventures, can also be viable options. Before making a decision, it's important to carefully consider your options and work with a financial advisor to find the best solution for your needs. With the right financing in place, you can make your commercial real estate purchase and begin building your real estate portfolio.
For any assistance with commercial real estate leasing, sales, or investing here in Anchorage, feel free to reach out to me directly via email or by phone with questions or to connect!