Commercial Property Purchases:
A commercial mortgage is a loan made using commercial real estate as collateral to secure repayment and the loan is made based upon the cash flow the commercial property generates.
A commercial mortgage will always carry a higher interest rate to cover the additional risk posed by a business use.
A residential mortgage is very different from a Commercial mortgage as the residential loan based on the perceived value of the under lying residential property and the loan is made based upon the size and stability of the proposed home owner’s income stream.
Interest rates on residential mortgage have historically been lower than commercial mortgages due to the huge market and heavy competition for loans.
Please understand the following:
A residential purchase is an optional, personally and emotionally based decision to become a homeowner. A residential purchase is a personal "choice" to attempt to capture the American dream.
A commercial purchase is a "Business Decision", — period! The only motivation for a commercial purchase should be to make a profit on business utility and cash flow and to obtain a reasonable return on your investment (down payment).
Commercial purchases involve business risk to the lender and therefore are much harder to qualify for than a residential mortgage.
Your only concern as a businessperson when purchasing a commercial property should be
1. Can I qualify for a commercial mortgage, and if so
2. Does the subject property meet my business needs and goals,
3. After property operating expenses and debt service (P&I) does the remaining cash flow provide comfortable profit and a reasonable return of my investment (down payment)
The biggest mistake made by commercial property purchasers, particularly in this market where borrowers out number lenders 1000 to 1, is to obsess about interest rates and then shop for a mortgage as one would if applying for a residential loan.
Commercial interest rates cannot be determined until you share your financial and property information with the lender!
In today’s market, obsessing about interest rates (which are historically low) is counter productive.
Your main focus should be on attracting the attention of the few lenders left and then determining if your loan request is viable enough to warrant a written Term Sheet. It should make sense in meeting your business and profit goals.
If you find a nice property that will fit your needs, allow you to operate more efficiently, will be instrumental in expanding your business and profits, then find a reputable commercial mortgage broker who can analyze and package your deal and shop it for you to the proper lenders who are ready, willing and able to do a loan for your particular business type and financial strength.
By placing your trust in a reputable lender, you will not only increase your odds of a successful funding, but will obtain the best terms available because they know where to go for your type of loan.
A word of caution.
Never ever, ever, sign an exclusive commercial mortgage lender agreement until that lender brings you a Term Sheet that has all the terms and conditions that you, are ready to accept from a business point of view.
It is only with an offer to lend in hand that you can put your pencil to the deal and make a considered business decision as to whether the deal makes sense to you as a business person who needs to make and profit and a return on your down payment.
For the next few years, you will have a once in a lifetime chance to purchase commercial property at values not seen in 20 to 30 years. If purchasing commercial property now makes sense to your business and future, contact your local Commercial Real Estate Broker to begin searching for the ideal property Once you have identified at potential purchase, we will work together, at no cost to you, to see if the numbers work.
If the numbers work in your favor, we will help you make your purchase the best investment in your business career.
Always telling our clientele that the rich got rich, owning commercial, income producing property.