Although the real estate market continues to show improvement from the recent recession, it is still a great time to get into the field of commercial property investing. The recent economy improvements mean that people have more money. More financial freedom gives people the ability to start their own businesses. An increase in new businesses means an increase in demand for commercial properties. The commercial property investing field is an often overlooked area of real estate investment. Money can be made in commercial property, as long as the following points are kept in mind.
Commercial investing requires money. A commercial investor will need access to money for acquiring a property, construction work, and for initial costs. They may need to hire a realtor to sell or lease out the property. The investor may also be responsible for city building permits and code renewals. You can never truly know how much the renovation and improvement of a property is going to cost, so it is always best to over budget.
Funds can come from a variety of sources. People who have access to large amounts of cash will find benefit in no interest charges and a freedom over which renovations they want to do. Renovation financing can also be obtained through a lender. However, it is important to note that, in some situations, lenders can set specific stipulations on the renovations.
Consider financing charges and timelines. When you purchase a property for commercial property investing, you want to unload the property as quickly as possible. This might be in the form of a sale or a lease, but it is important to unload the property and begin making a profit as soon as possible. Finance charges continue every month, until the loan is paid off. Some lender contacts may require higher interest rates the longer the property is held onto.
Choose down payments and length or loans wisely. The amount of money that you put down onto a loan to real estate investment lenders will make a difference in your monthly payments and the amount of interest that you will pay. Duration or payment period for a private loan is also shorter compared to the traditional loan which can usually go from 1 year up to 20 years while private loans can only be granted with duration of up to 5 years.
Most hard money loans are secured by a property with 30 to 50% equity, so the investor is well protected. When it comes to commercial real estate investing basics, it is important to consider all funding options and weigh the pros and cons. Hard money offers higher interest rates and lower loan to value ratios. Hard money interest rates can start at 15%, 18%, or higher. The funding decision is important and will factor into the amount of profits or losses that you take as an investor.
Hire highly qualified contractors. As already mentioned, you are on a strict timeline when engaging in commercial property investing. The longer that you take to turn around a property, the more profits that you will lose. This crucial time management makes it extremely important to hire a group of contractors who are not going to slow the project down. It can even be helpful to have a great group of contractors selected, prior to closing on a commercial property investing project. A detailed contract should also be present, prior to any construction work beginning.
There are many beneficial reasons to invest in commercial real estate. With the right amount of research and financing considerations, commercial real estate investing can be a profitable business. There is a high demand for commercial property space, making it a low risk investment. However, it is extremely important for a potential investor to consider all options and to understand the loan value process before obtaining a commercial investing loan.