Everyone in the residential real estate business tends to eye their options carefully. But today, several residential real estate investors are also looking at commercial real estate investment as an ideal way to diversify their portfolios. However, you may not know the best way to get into the retail real estate market. If you want to invest in commercial real estate, you need to understand your lending options and select suitable commercial property lenders. Having some past residential mortgage experience will not be enough if you wish to try your luck in the retail real estate market. All property buyers must seek educational opportunities and add more instruments to their toolbox. Shifting your investment pipeline from residential real estate to commercial properties requires a lot of diversification tactics. Specifically, you need to understand the key differences between commercial and residential loans.
Type of Property
Let us start with the fundamental difference between commercial and residential lending: the real estate itself! Commercial property is ideally defined as real estate used for any business activity. For tax purposes, a residential property that holds more than a particular number of units may also qualify as commercial real estate. Unlike residential properties, which can all look the same within a single neighborhood. commercial properties often look unique and serve different purposes no matter where they are located. Think about the differences between retail, warehouse, apartment, and office properties. All these properties have very few things in common. However, each of them is commercial real estate.
It would help if you devoted some time to learning the ins and outs of all commercial real estate properties found in your market. List all properties that are easier to close and the ones that are most likely to present challenges shortly. You must also contact professional commercial property lenders to understand better the complexities. involved in commercial real estate that make typical loan transactions take longer than in the residential arena. A lender may take several months to close a commercial loan. However, non-bank alternatives may be able to shorten the process for you.
While most residential real estate lenders focus on qualifying the borrower, commercial property lenders focus on qualifying the property. Although commercial lenders also qualify borrowers, their underwriting team spends a lot of time determining the property’s ability to generate revenue in the near future. This is where DSCR (Debt Service Coverage Ratio) comes into play. The Debt Service Coverage Ratio is calculated by taking the total net operating income of the property. And dividing it by principal and interest payments (debt service). The primary goal of underwriters is to figure out if the subject property has the potential to generate enough revenue to cover the loan repayment.
The most common loan term for a residential mortgage is 30 years. Nevertheless, commercial mortgages tend to have a term length of 5 to 10 years. The main reason commercial property lenders offer you shorter terms is the increased risk of a commercial mortgage. Hence, all commercial borrowers who wish to hold on to their real estate need to refinance their mortgage regularly. It can be good for originators who are good at creating a solid relationship with their clients. Since they will have an opportunity to repeat business, which does not exist for residential property lenders. While some borrowers might welcome the flexibility of a short-term loan, others would prefer to secure a long-term solution with a fixed rate. No matter what kind of loan you are looking for. Our Real Estate Funding Solutions professionals can help you secure an ideal loan for your next commercial real estate purchase.
Investing your hard-earned money in commercial real estate can be a successful venture. Keep in mind that commercial real estate is much less volatile than other forms of investment, such as the stock market and cryptocurrency. It tends to provide you with several benefits, especially in the long term. However, it would help to consider all your options before finalizing your deal. With the help of our professional real estate agents, you can be sure to land an ideal property and loan terms in no time.
Have More Questions? Real Estate Funding Solutions Is Here To Answer Them All!
If you plan to invest in commercial real estate but do not know where to begin, you must contact Real Estate Funding Solutions right away. All our real estate financing professionals have years of training and experience and can help guide you through the process. We can also help you secure the perfect loan terms for your purchase. And ensure you make all the right decisions during the entire process. Call our team today at +1 855-913-8637, and we will answer all your questions.