Commercial real estate can be a very lucrative investment opportunity. If you’re looking to break into this area or expand your existing operations, a commercial real estate loan may be able to help. This post highlights the different types of loans that are available.
Real Estate Purchase Loans
For borrowers with a large amount of savings, a real estate purchase loan can be an attractive option. However, these loans treat the property as collateral, and they require a very strong credit score.
Bridge loans help borrowers fulfill short-term financing needs while they await a longer-term financing solution. Per Investopedia, these provide immediate cash flow; however, they often have high-interest rates. This type of commercial real estate loan is much easier to obtain if the borrower has a strong income source as well as a healthy credit history.
Hard Money Loans
Hard money loans are typically used by borrowers to prevent foreclosure. Because these involve precarious financial circumstances, the interest rate is often very high. On the bright side, these can provide the helping hand borrowers need to keep their property.
Joint Venture Loans
As the name suggests, a joint venture loan is a collaborative effort. In this type of commercial real estate loan, two people are responsible for making payments on the loan. This can be a particularly good setup if the two borrowers split expenses for the property as well as the income derived from it. Look into this option if you’re entering the world of commercial real estate with a partner.
Participating mortgages are also a collaborative effort, but in this case, one participating party is the borrower, and the other is the lender. It is most often used in situations where tenants have long-term leases—i.e., office complexes and retail spaces. The borrower makes mortgage payments, while the lender keeps a percentage of income generated from the property. The upside for the borrower is a lower interest rate.
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