While there are dozens of types of specialized commercial real estate financing, most of them only really work for a few specific kinds of investment. Understanding the small pool of loan options that work for many different investor goals only involves knowing three or four major financing models, and once you get that, it’s a lot easier to plot out your next investment. If you are only familiar with the traditional commercial mortgage with a fixed rate and amortizing payments, then these loans are the additional options you really need to know.
Bridge Loans for Commercial Real Estate
This is a popular type of loan because it can be set up in so many different ways. Terms are generally three years or less, with the option to make interest-only payments until a final balance payment. House flippers use them to buy and improve homes, allowing the sale value of the property to pay off the loan, then keeping the additional proceeds as profits. They are not the only ones, though. This is also a popular form of commercial real estate financing for working capital because you can refinance a building with a bridge loan to get cash out for other investments.
Stated Income Loans for Commercial Properties
When you want to either purchase or refinance a building that is earning money already, you can opt to use that building’s income as the basis for a loan, rather than its resale value. The property is still used as collateral to secure the loan under this model, but its valuation is based on the money it brings in rather than its auction value. This can be a really good option for getting equity out of stable, high-income investments to use in new ventures.
Hard Money Real Estate Loans
Hard money loans are quite simply private loans secured with investor capital, rather than bank loans that are handled through established banking and borrowing relationships with other financial and governmental institutions. Many of them provide working capital loans for commercial real estate. This is a different commercial real estate financing program from bridge loans because these working capital loans are often for terms longer than three years but not longer than seven. They can be configured with amortizing payments or interest-only payments, so it is worthwhile for the borrower to shop around for a loan program that is the perfect fit for the company’s current needs.