Commercial real estate is a great business investment for the long term. Historically, commercial real estate provides a good return on your investment and is a secure asset. If you plan on having tenants, then the property will be a steady source of income.
When you do decide to invest in commercial property, choose the lender that helps you achieve your investment goals without the hassle. Acala Investments is a hard money lender with a lending process based on common sense, not the yards of red tape that you have to deal with when borrowing from a bank. We underwrite commercial loans for all kinds of real estate with quick closings and fast financing.
Commercial Real Estate Loans Cater to Different Borrowers
Most commercial real estate loans are made to property developers and corporations or to business entities such as limited partnerships, trusts and funds. In contrast, residential loans are usually made to individual borrowers.
Commercial Real Estate Loans Have Shorter Amortization Periods
Both commercial and residential real estate loans are amortized loans. Amortized loans are repaid over time in regular installments in which more of each installment payment is applied to the principal as time goes on. With commercial real estate loans, the amortization period typically ranges from five years to less than 20 years. Residential loans have 15 to 30-year amortization periods.
Commercial Real Estate Loans Have Lower Loan-to-Value Ratios
Commercial and residential real estate loans also have different loan-to-value ratios. Lenders use loan-to-value ratios to assess how much risk they are taking on a hard-money or secured loan by comparing the amount of the loan to the value of the property used to secure it. A good loan-to-value ratio is considered to be 80% or less. Commercial loan-to-value ratios tend to fall between 65 and 80%, whereas residential loans are allowed higher loan-to-value ratios upwards of 80% and as high as 100% with certain loan programs, such as the VA or USDA.
Commercial Real Estate Loans Have Unique Requirements
It's not unusual for an individual to be approved for a residential loan on a property they have no intention of living in full-time, as in the case of vacation homes and investment or rental properties. However, some commercial real estate lenders require that the borrower's business occupy at least 51% of the property or building. To get a commercial real estate loan, you’ll need to decide on the type of commercial loan you need and then narrow down your lender options.
Commercial Real Estate Loans Have Stricter Underwriting Standards
Compared to residential borrowers, small businesses are considered riskier to lenders, as are certain other unconventional business models. Commercial real estate borrowers are evaluated closely on their business finances and credit score. Lenders also consider the condition of the securing property and the personal finances of any business partners to the borrower.
Buying Commercial Real Estate: Commercial Loan Basics
Investing in commercial real estate is similar to buying a residential property, except the cost is generally much higher. Most investors require the assistance of a commercial loan to make the purchase because of the expense. It’s common for commercial real estate investors to be a business entity such as a registered corporation, rather than an individual.
Applying for a Commercial Real Estate Loan
Your Commercial Real Estate Lending Experts in El Paso
Contact Acala Investments today if you have any further questions or are interested in a commercial real estate loan.