How to Finance Investment Properties
Investing in commercial real estate is a great way to leverage your finances and grow your business. Whether you’re looking to expand your portfolio or start your first commercial investment project, find out how to finance your property and make the most of your opportunity.
An investment property is anything that is used to generate income. Unlike a vacation home or other real estate purchase, investment properties are typically purchased as rental units or storefronts for your business. Some investors choose a property that requires maintenance, then fix and flip the property for a profit.
In order to receive financing for these properties, you need a few basic things. First, nearly every loan type requires a credit check. A strong credit score will not only help you become approved for financing, but it could also give you leverage to reduce your interest rate or receive a higher credit limit.
You’ll also want to prepare a solid business plan. Commercial real estate is a business investment, so you need to show your lender that you’re serious about treating it like a business opportunity. That means creating financial projects and other documents that show you understand the risks involved.
Some loans are highly dependent on the type of property you’re wishing to finance, so have an idea of the ideal property in mind before you ask for additional information about a particular loan. You’ll need to know some history on your property, receive an appraisal and other steps to ensure your lender can rely on the property as collateral.
Many properties are financed through traditional bank loans. A commercial bank loan is similar to a residential mortgage. However, many commercial loans require a balloon payment. Unlike a fully amortized loan, a balloon payment requires the entire remaining payment to be due in just a few years.
Private loans are popular for many business investments due to their flexibility. A private institution may have a wider selection of loan options available to you, so you can customize your investment strategy. From balloon mortgages to flexible bridge loans and cash-out refinancing, you can tailor your loan type to match your specific property and investment plan.
Compare each option carefully before you sign up for a particular form of financing. Commercial real estate investment can be difficult without the ideal financing, so find out what options are available to you as you search for the best property to purchase.