There are many diverse ways to structure Commercial Real Estate financing. Real estate investing is all about leverage. That's the best way to grow and scale an investment portfolio. Whether it's with capital partner money, often referred to as other people's money (OPM), or bank financing, being able to purchase an income-producing asset for only a fraction of the value is a game-changer. The biggest advantage to understanding commercial real estate lending is how much it differs from residential. Here are some of the ways.
Asset types
A commercial real estate loan will typically kick in when you're dealing with a business such as retail, restaurant, office, etc. Further, commercial lending comes in on the residential real estate side typically when you have an asset that has five units or more. In this case, a duplex, triplex, or fourplex typically don't qualify for commercial lending.
Asset valuation:
Nowhere are the two lending products more different than in how they value the underlying asset. A residential loan will value the property based primarily on comparables; that is, what did a similar property in a similar neighborhood sell for? Comps give you the approximate value of your residential asset. On the commercial side, the asset is treated more like a business than a comparison to a similar property. Typical commercial lending valuations are made using the local capitalization rate (cap rate) as well as the net operating income (NOI) of the property.
For instance, if you have a 10-unit multifamily building with an NOI of $120,000 and a local cap rate of 6%, then your building valuation will be $2 million ($120,000 divided by 0.06). This approach is not used on the residential side. At Capital Biz Solutions we have lender affiliations that lend to all asset types of commercial real estate. From multifamily investment properties to flip fix to commercial buildings of office and retail space. Our lenders have the most competitive rates and terms in the industry. Please contact us on the web at https://www.capitalbizsolutions.com/ or simply call us at 508 864 7758. We look forward to assisting you with your new real estate project.
