Financing Commercial Investment Properties

If you are a real estate investor, you know that getting financing for commercial investment properties is much more difficult to finance than residential. This is primarily due to the unique infrastructure involved, the large capital investments, and the long-term liabilities required by private lenders. 

This brings higher risk to private money lenders if they need to foreclose. If property usage is a niche, reselling can become a nightmare. This type of investment property loan requires real estate investors to have extensive experience or resources to meet the loan requirements.

You will need to work with an attorney and complete extensive due diligence on each party involved in closing your loan to ensure everything is done correctly. 

Here are some common commercial investment properties:

1. Agricultural land

Anything to do with farming in the U.S. will fall under very different regulations than other kinds of property for loans. Some states allow residential and commercial use on one land parcel.

Agricultural investment property includes land devoted to raising livestock and crops.

2. Business equipment

Generally, business equipment is anything not built into a property that can be uninstalled and/or removed from the premises, even if done so with difficulties, such as computers, desks, and printers to industrial equipment and machinery. It can be one of the more accessible commercial property types for securing loans due to its ability to transport for resale.

3. Churches

Church loans are among the most difficult to finance for several reasons:

• The building structures are often unique, so if a lender forecloses, it can be challenging to sell.
• The financial structure of churches is unique and doesn’t lend itself to the traditional personal guarantee. 
• Due to the private lender’s risk, the loans are usually smaller than a borrower needs or wants.

TIP: A borrower looking for financing for a church will usually need to find a private lender specializing in church financing.

4. Healthcare facilities

Healthcare facilities range from small clinics and doctor’s offices to urgent care and hospitals. Healthcare facilities usually require unique, built-in infrastructure.

5. Hotels and motels

Hotels are building structures with rooms opening to interior hallways, while motel rooms open to the outdoors. Purchase and renovation of already-operational hotels or motels are much easier to finance than new construction. 

TIP: For operational hotels that are not performing well, the lender will want to know why. Management and operational practices can be fixed, while a bad location cannot. You will need to show how you plan to resolve these issues.

6. Industrial

Industrial property is a large subclass of commercial property that commonly encompasses “heavyweight” or “dirty job” uses: warehousing and distribution, factories, refrigeration, cold storage, telecom and data, and beyond.

7. Marina

A marina is anywhere boats, yachts, and other small watercraft docks. Marinas often have further amenities and other businesses, like retail and restaurants, that operate together on marina premises. A marina may be wholly owned by one borrower or have individually-owned units with or without a landlord who owns the shared amenities.

8. Mixed-use

Primarily it refers to a single real estate development that incorporates everything from retail, entertainment, hotels, and residential to office buildings and parks/gardens. These developments may be single buildings, multiple buildings on one property, or various properties.

TIP: Make your due diligence for this real estate commercial investment. These projects can also be more challenging to execute as the lender must evaluate each use separately, with zoning and building approvals becoming harder and design details increasing exponentially.

9. Office building

Office buildings are more easily financed than many other commercial loans due to their plug-and-play ability for most businesses. Office building financing falls into categories similar to apartments, condos, single-family, and multi-family residences.

10. Retail

Retail is a broad category that refers to any property with a public/consumer-facing storefront to sell goods and services. This includes shopping centers, big-box stores, pop-up shops, and individual stores. Like office buildings, private lending for this kind of property can be easier to find due to the ease of transitioning occupancy.

11. Shopping centers

Shopping centers or malls are a specialized category of retail property that contains many storefronts for different businesses, usually leased to tenants rather than individually owned. Due to skyrocketing online shopping, financing for shopping centers is becoming more challenging. 

12. RV parks

They are similar to hotels and motels in the temporary nature of their stay. While mobile home and RV parks are sometimes combined in one facility, they differ. 

It is also harder to find financing for RV parks, as they tend to be even more niche than mobile home parks.

13. Raw land

It’s also called undeveloped land. It’s a vacant area without public utilities, buildings, or driveways and is not even prepared for crops or livestock. Often, raw land is in rural areas found off county roads.

14. Vacant land

Vacant land is land that isn’t being used for any purpose. It can be empty fields, abandoned lots, undeveloped parcels, and many other things.

Conclusion

Commercial real estate investing comes with challenges, but financing doesn’t have to be one of them. You can confidently take on any commercial investment property project with the right team. The RE Investor News team has the experience and expertise to get the job done right. Contact us today to learn more about how we can help you finance your next real estate project in New York, Florida, Texas, Carolina, and beyond.

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