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Commercial Income Property Financing: Part 1 of 3
Welcome to this first portion of a three-part series about income property. In this first segment we will be discussing financing options for commercial income properties as well as the upside (and downside) of owning this type of property. If you're interested in getting into the income property business, chances are you'll need financial assistance from your local bank or private lending institution. You'll soon discover that making sense of the many different options available can be confusing if not down right frustrating. If you're new to the income property market you may be unfamiliar with some of the terminology you'll hear. The purpose of this article is to assist the novice in getting a good start in this potentially lucrative industry. There are many different options available to you depending on the type of income property you're interested in investing in. Most lenders will recognize three separate and distinct types of property, each with it's own financing requirements. These properties include commercial, residential, and industrial income property. Commercial Income Property If you plan to invest in a commercial income property, you're probably planning to rent the building to retail businesses for use as office or warehouse space. As a commercial income property owner you can benefit from a perk not usually available to residential or industrial income property owners; you have the option to charge a percentage of your tenants monthly income in addition to a set monthly rent. This percentage is usually based on the gross monthly sales revenue of your tenant. For example, the rental contract may include a $5000 per month base rent amount plus 5% of the tenant's gross sales for the month. If you're tenant brought in $20,000 of revenue last month, you get an additional $1000 on top of the $5000 base. You may be unfamiliar with this type of arrangement, but it is actually quite common. If you purchase retail income property with good location in a growing neighborhood, this can be a good way to capitalize on your tenant's growing business without raising rent. Most income property owners charge from 5% to 10% of their tenants' gross monthly sales revenue. When it comes time to finance the purchase of your commercial income property, a private lender can usually provide better options and interest rates than your bank or credit union. A private lender is in a position to provide the best option for two main reasons; 1) unlike your local bank, private lenders specialize in income properties (as opposed to home loans), and 2) private lenders are more selective in their loan requirements allowing them to provide better terms for those borrowers they accept. Loan terms (the time the lender gives you fully repay the loan) for commercial income property typically ranges from five to twenty years. Many private lenders will also have a minimum and maximum loan amount which usually goes from $500,000 to $2 million. Interest rates can run from 5.60% to 7.20%; substantially lower than the most competitive bank. It's also important to know your lender's LTV (loan-to-value) ratio. The LTV is simply the ratio of money borrowed on a property to the property's market value. In other words, you will have to come up with a certain amount money yourself before you will be considered for a loan. Currently, most private lenders offer LTV's of 70% to 75%. If you plan on financing the purchase a $1.5 million office building with a lender offering a 75% LTV, you will need to come up with at least $375,000. In the next segment, Residential Income Property Financing: Part 2 of 3, we will be discussing how to finance and effectively manage an apartment complex. Cameron Brown is an internet marketer specializing in investment property. For more information on income property, please visit Security National Capital
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Vote in TCPalm's Top Home poll for June Treasure Coast News Putnam County Treasurer reminds residents of real estate tax deadline Hometown Stations Top Dog: Chad Phillips’s Plans for Running Nuveen Real Estate Commercial Observer Florida Trend Real Estate Florida Trend Navigating the Tariff Surge: Opportunities in Logistics Real Estate and Supply Chain Resiliency AInvest Jake Paul Closes One Of The Largest Real Estate Deals In Georgia History With $39 Million Purchase of 5,600-Acre Ranch Yahoo Finance Related Beal Donates $200,000, Considering $200,000 More to Strengthen New England’s Fishing Community Boston Real Estate Times Real estate inquiries by wealthy New Yorkers into Florida properties jump 50% after Mamdani primary win Fox Business Logistics resilience drives Q2 industrial real estate stability amid easing supply surge, reports Cushman & Wakefield logisticsmgmt.com More Americans Are Buying Real Estate in Barbados Caribbean Journal Adams' new campaign HQ opens in SL Green building amid key support from real estate giant New York Daily News Golfer Bryson DeChambeau's Massive Real Estate Investment Has Eaten Up Most Of The $125 Million He Got Paid To Switch Tours Yahoo Finance HGTV’s Egypt Sherrod Shares Cryptic Message After ‘Married to Real Estate’ Cancellation tvinsider.com International Buyers Purchased $56 Billion Worth of U.S. Homes from April '24 to March '25 National Association of REALTORS® Inside Savannah Homes: Classic Gordonston residence with amazing curb appeal - Savannah Morning News Inside Savannah Homes: Classic Gordonston residence with amazing curb appeal Savannah Morning News Adam Sherriff-Scott Joins Nicola Real Estate to Lead Leasing and Portfolio Strategy in Toronto GlobeNewswire Real Estate announce 'A Celebration of Atlas - The Eleven Year and 7 Month Anniversary Tour' BrooklynVegan Ballantyne Tower sells for $71.5 million as investor confidence returns to corporate real estate WCNC Lone Wolf Technologies Unveils Deal Tracker to Streamline Real Estate Transactions The Software Report Tarek El Moussa Shares Real Estate Advice for Home Sellers EntertainmentNow HKS Real Estate Arranges $25M Construction Financing for Dual-Branded Hotel in Antioch, Tennessee REBusinessOnline Professional Services Automation Powers Real Estate Efficiency in the USA, Led by IBN Technologies openPR.com Realtor.com's Zenlist Acquisition: A Strategic Move to Dominate the Real Estate Tech Landscape AInvest Who will buy this Oregon vineyard estate for sale at $2.85M with historic zinfandel vines? 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