Using Hard Money Loans for Commercial Real Estate Investments
Using hard money loans for commercial real estate investments is a great idea but first: why should you invest in commercial real estate? The best reason to invest in commercial over residential rentals is the earning potential. However, they can be more complicated that residential property because they have longer leases, they are harder to value, and tenants need to be taken into consideration. Once you understand the market, however, it doesn’t have to be difficult.
First of all, commercial real estate can be any of the following:
- Office property
- Industrial property
- Retail property
Commercial real estate can help diversify your investment portfolio. Stable commercial properties can provide you with a steady stream of passive income. Also, the investment is much more secure and predictable than investing in stocks. With stocks, you only own the “value” but with property, you own something that is tangible and will always be worth something.
Reality Express reports that commercial properties make more money than other investments:
“The income and flexibility that commercial real estate investment offers are two of the biggest benefits. Commercial properties generally have better ROIs, averaging from 6 to 12 percent.”
Another great aspect of commercial real estate is the ability to get creative with the financing. Traditional bank loans offer no flexibility but with hard money loans, you can find the right loan for you.
According to Bigger Pockets, “Commercial loans are often more lenient and flexible than residential loans. You can also use a combination of financing. For example, if you were buying a $10 million commercial building, the bank may lend you $7.5-8 million and the balance may be raised with a combination of owner financing and private money. The seller may hold a 2nd mortgage of a million dollars, interest only for 5 or 7 years. The remaining million dollars along with closing costs and renovation capital could be raised through a private placement.”