There are inevitable benefits and shortcomings when a person decides to borrow money. In the commercial real estate industry, some deals may seem confounding when you look at a property’s potential for income and the borrower’s credit.
A commercial real estate agent must make sure their clients are well informed about all of their financing options, including traditional institutions such as banks and alternative options like private financiers.
Some pros of using banks include the fact that they normally offer low mortgage rates compared to other options. Loans can be long-term, spreading over twenty years or more, and loan qualification guidelines are traditional, which lower a borrower’s risk of default.
However, banks also usually have tough credit score, down payment, and income verification requirements. They also have a lengthy approval process and often won’t lend on atypical product types.
Pros of taking this route for commercial real estate include no set lending requirements and a quick securement of funds since the qualification process is less complicated.
However, these loans usually come with higher interest rates, and lenders expect a high return on investments. These loans are also often short-term.
A type of lending that has grown substantially in the field of commercial real estate is transactional funding. Lenders of this type specialize in wholesale real estate and flipping deals. This process has a faster turnaround than other types of funding.
A commercial borrower must factor all of their costs into the deal and cover themselves with a good profit to justify the risk.
When re-selling to another investor, the cost of transactional funding can be significant. Fees and interest can add up. However, individuals can solidify those fee amounts before making a deal.
For more information about the benefits of commercial real estate, contact the experts at Magis Funding.