A Guide to Commercial Real Estate Loans

KEY WEST, Fla. - Feb. 20, 2015 - PRLog -- Per Gary Smith,Top Producing Commercial and Residential Real Estate Broker in Key West, "Commercial real estate is a long term investment venture, and, over the life of a building, there will be need for funds to address repairs and finance new amenities and features.

Some improvements are vital to the safety of a building while others are intended to make it more attractive to tenants. These things don’t often come cheap and it’s normal to use debt instruments to fund these situations.

Because of the many needs of commercial real estate properties, banks and private lenders have created a number of loan products that are specifically tailored to such needs. While commercial mortgages are among the most known, these are just one of several on which investors rely.

Of the most common are real estate purchase loans, which work much like a residential mortgage and the property itself is used to collateralize the loan. The amount is determined by the loan-to-value ratio.

Types of Commercial Real Estate Loans

When you purchase a commercial property, you are making a calculated decision based on what you know about the property itself, the local market, and possible scenarios. Over time, you’ll need to make repairs and improvements, either because of what they offer or because of new codes. Here are the most common types of commercial real estate loans:

Bridge loans. These are used when you have an immediate need for funds but do not have the capital for said expense. Bridge loans are primarily offered by private lenders, and are typically a short term loan, generally less than a year, obtained while waiting for long term financing to be approved. To qualify for a bridge loan, the applicant must have impeccable credit, as well as substantial income and assets.

Hard money loans. These types of loans place the property in need of repair or improvement as collateral to the lender. Because hard money loans are offered by private lenders, not subject to the same lending standards, and constitute higher risk, these debt instruments carry high interest rates. Hard money loans are also a short term financing option.

Participating mortgages. These loans are made to commercial property owners in exchange for profits generated by the building. Participating mortgages require a monthly principal and interest payment, along with a share of rental proceeds.

Joint venture loans. As the name implies, joint venture loans require partners to act together in order to obtain financing because no one party can qualify on his or her own. These types of loans are generally offered by investment groups and private lenders.

Before choosing any loan, look into all options and become educated about each one to learn which is most appropriate and feasible. For help with Key West Commercial Real Estate for sale please contact me.

Gary Smith is a Top Producing Broker, located in the Key West. His company is Keys Commercial Real Estate LLC..

Gary can be reached at (305)304-7009