If you are interested in widening your real estate portfolio, there is a good chance that you are not able to float the entire cost of such an investment on your own. This is where you will need a commercial building loan to help you cover the costs of the property and turn it in to a revenue generating investment.
Very few individuals or businesses are able to handle the massive amount of funds that are necessary to take advantage of a hot tip. It is also unlikely, if you are operating a business that has payroll, operating expenses and a steady need for cashflow, that you are able to set aside enough to cover the expense of renovations to existing properties. This is where a commercial building loan comes in to assist borrowers.
These loans are often used to provide the necessary capital to make large improvements to the property or the equipment of a business in order to increase the revenue stream. Typically, these loans are not used to purchase new property, although there are always exceptions to the rule. For the most part, a commercial building loan is used to improve an existing business in order to increase the revenue stream. In this way, the borrower is able to quickly pay back the loan. Ideally, the increase in capital from the improvements will be almost immediately evident and will enable to borrower to also quickly pay back the loan.
While there are many different sets of terms and interest rates, depending on the lender and the unique circumstances of the borrower, there are a handful of standard practices that you are likely to encounter if you are looking for a commercial building loan. One of these is the terms of payment. It is fair to expect that you, as a borrower, will face a large balloon payment at the end of the loan. Unlike a residential mortgage, this is a standard practice with commercial loans. This might seem daunting until you realize that the purpose of such a loan is to generate revenue quickly. The loan should also help facilitate an increase in the bottom line of the borrower, especially with properties that are tied to rentals, as the renovations should increase the value of the property.
What are the drawbacks of a commercial building loan?
One of the biggest drawbacks is that an investor has no control over many of the factors that determine a borrower’s ability to pay back the loan. While they are absolutely necessary in order to expand an operating business by way of renovations and improvements, there is always a risk involved when borrowing such large sums of money. Anyone who says that it is a guaranteed investment is either stupid or a liar. That being said, there are a number of things that a borrower can do to minimize their risk. Being organized, doing your research and being realistic with your planning are all steps that can be taken to ensure that your commercial building loan is effective and responsible.
Broker/RI/CEO/MLO
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
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