Ways of financing the purchase of commercial real estate

Commercial real estate is a space that is not intended for residential or public areas. This real estate is intended for business use and the properties included under this category are office buildings, individual offices, shopping malls, shopping centers, shops, parking lots, hotels, medical centers, logistics complexes, buildings Industrial and gas stations. The property can be used for a wide variety of different and varied business purposes, the property can be improved by renovation and sold at a handsome yield, it can be rented for short or long term and can, of course, be used for the immediate business of the buyer.

Purchase of commercial real estate
Moreover, finding a deal to buy commercial real estate is a relatively simple thing, and the more sought after the area, the higher the return accordingly. At the same time, there is no need to invest large sums of private money as we are used to from the world of residential real estate.

Closing transactions in the world of commercial real estate is complex and longer than buying an apartment, but at the same time, the average annual return from a commercial real estate transaction (6% -7%) is higher than in apartments (3.5%). At the same time, the investment in a commercial property is higher, the property owner is based on the economic success of the tenant and the property tax paid for a commercial property is much higher than that paid on private property. There is also a marginal tax on commercial property that starts at 30% compared to a 10% purchase tax on residential real estate.

Financing the purchase of a property
The best-selling way of financing a property is a mortgage. Maintaining a residential apartment does not generate any profits for the property owner (except for rent in some cases) and therefore, the bank check, in the case of buying an apartment, will mainly refer to the borrower’s repayment ability. Of a sufficient borrower, the mortgage will most likely be approved.

In commercial properties, however, it is difficult to impossible to obtain financing in the form of a mortgage. When the bank examines the viability of the investment in the commercial property, it puts into the system of considerations the potential income throughout the loan period. For this reason, borrowers should present the commercial property in the best possible way when meeting with the financial entity and in fact, prove that the purchase of the commercial property is worthwhile and does not pose a risk to the bank. The terms of the business loan are ultimately determined by the value of the property, its condition, the business plan of the borrowers, and the past of their credit with the bank.

A commercial loan can be repaid for up to 12 years and the financing rate is not limited by regulation but is limited by the banks to 70% on average. The very fact that it is not possible to get a mortgage for the purchase of commercial real estate significantly increases the cost of purchase and does not usually allow capital gains from such an investment. It is possible to get a business loan from institutional banks More than in the institutional bank.

In fact, the spread of the loan for such a short period (up to 12 years), burdens the borrower and causes him to pay month after month a significantly higher amount of money than the mortgage repayments on private property. As a result, financing investment in commercial real estate can sometimes be difficult and cumbersome.

In conclusion, there is a significant lack of financing channels for the purchase of commercial real estate property. Usually, such an investment will be made up with the help of a commercial loan from an institutional or non-banking entity. The best financing channel for him.

commercial real estate

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