Do you have a clear purpose when applying for commercial investment property loans? Do you have clear plan? Have you given much thought to it?
For some of you it is obvious. For some it may not be.
Let’s start out with a real life story of what can happen when you do not have a clear purpose and plan in selecting commercial investment property loans. One of our clients let’s call him, Bill and he found a multifamily property and applied for an apartment loan. It was love at first sight for him when he found this gorgeous apartment property. It was new and stunning!
The problem was that it was overpriced and had low cash flow. He would not be making much of a profit. But he was blinded by the beauty of the apartment complex and wanted a multifamily loan.
His emotions blocked his reasoning. He got carried away with his love for the property, and he ended up purchasing a property that wasn’t based on sound business sense.
What is your purpose for getting a commercial property?
Reasons for commercial investment property loans
Let’s say that having a well funded retirement is very important to you. You know that commercial investing can be a very good way to have accumulation of wealth – including passive income. And commercial properties over time tend to give you increasing income from increased rents, and increased property value. Depreciation, tax advantages, etc. are other financial benefits.
You want to buy a commercial property that needs work and you want to upgrade it. commercial investment property loans will help you with that upgrade. You or a partner of yours has extensive experience in rehabbing commercial properties successfully. You understand costing and estimating, and know if the project is executed correctly, it can be highly profitable.
I must stress the importance of having experience in rehabbing commercial properties successfully. This is true for residential property rehab too. Many novices end up losing a lot of money, or just making money for the construction crew and little or possibly nothing for themselves.
3. Buy it and flip it.
This can be similar to buying a commercial property that needs work and upgrading it, because many people who buy properties and flip them also upgrade the property. But in this case you don’t hold onto the property. You sell it for a quick profit.
However – one very important thing. You may want to hold onto the property for two years to meet a major seasoning requirement. This is the requirement of holding onto the property for two years (or it may be a little less), to be able to qualify for increased appraisal value. In other words, If you purchase a commercial building and within a few months you make extensive improvements – plus you are able to raise rents appreciably, you do not get the increased appraisal value until about 2 years. You will however get increased value because of capital improvements added together with your original purchase price.