How To Find Funding For Your Real Estate Development
No matter the type of commercial real estate you decide to invest in, it will almost always require a bit of outside funding. This outside funding will help you invest in more or larger properties, which will be more profitable in the long run. This funding will not only give you the ability to acquire land or property, it will also cover the costs of planning, construction, and other related expenses. This funding can come from a few different places:
Commercial Property Loans
Borrowing for commercial real estate is quite different from borrowing for a home or other investment property. Commercial real estate loans are often made to business entities such as corporations, developers, partnerships, or trusts. Lenders in a banking situation often require a significant credit history and someone to guarantee the loan. The terms of commercial loans typically range from five to twenty years, and the amortization (spreading out of loan payments) period is often longer than the term of the loan. Many commercial property loans are interest-only loans resulting in lower monthly payments, but the full amount of the principal due at once.
Commercial real estate loans are generally used to purchase or renovate commercial property or to refinance existing commercial property loans. Lenders often require that the property be owner-occupied, meaning that your business will have to occupy at least 51% of the building. To get a commercial real estate loan, you’ll need to decide on the type of commercial loan you need — depending on the property and business — and then narrow down your lender options.
Most banks provide commercial real estate loans, but separate commercial lenders are also an option. Here are the benefits and downsides to both, according to valuepenguin.com:
Banks
Most banks provide commercial financing for various types of properties. Local banks can typically offer loans up to $1 million, while regional and national banks can provide even larger loans.
Pros:
Good rates
Possible synergies with other accounts.
Long-term financing options
Cons:
Requires the most documentation
Slow process
Only for borrowers with good or excellent credit
Commercial Lenders
In addition to banks, there are a wide variety of non-bank finance companies that can provide commercial real estate loans for small- and medium-sized companies. These commercial loan rates tend to be higher compared to banks; however, if you need a loan fast, this could be a good option.
Pros:
Less rigid underwriting standards
Faster approval than banks
Lower fees and closing costs
Cons:
Interest rates higher than banks
May require a balloon payment in 5 to 10 years
Many are short-term loans
Private Investors
Private investors can be passive or actively invested in your commercial property. Non-bank or lender-related financing options can work better for your bottom line and personal financial situation as an investor. With a private investor as your financing option on a commercial real estate investment, the situation becomes a more personal and less institutional relationship, which has many benefits.
Scandia Company is an example of a private investor that can help you fund your commercial real estate investment. At Scandia Company, we are a family office with a proven track record of building value through long-term, thoughtful investments in real estate holdings. We believe that real estate should be first class. We invest in properties that edify and elevate their surroundings and the people who inhabit them.
As a family office, family is at the core of every decision we make at Scandia Company. Our real estate partners are an extension of that family. Unlike other lending and investment options, we take a long-term, partner-centric approach to our investment decisions, always holding people and family at the core. If you are interested in learning more about the real estate development funding options we offer, reach out to us.