Wait a minute … shouldn’t this be written by a commercial real estate broker? Good question – read on.
Money is mobile. It moves among markets, countries (currencies), and asset classes in order for the investor to optimize his (or her) risk/reward. This is notable and timely today given the recent activity in the stock market. Some of these market participants are going to reconsider their allocation of assets. Commercial real estate may be on the table – maybe your table!
Commercial real estate investment doesn’t consider flipping houses, up to 4 units. This is also real estate investing, but the asset class is residential. This is an important distinction because your lenders make this distinction also. And we know why lenders are important in investment real estate.
Well-healed real estate investors who have sufficient cash to buy their next investment with 100% cash don’t. Real estate has traditionally been known to be a leveraged (borrowed money) investment. (Congress has been writing laws to “guide” leveraged real estate investing since the early 1900’s – it’s the American way!) So it’s not that you borrow money for your shopping center of office investment, but how much and under what terms and conditions, and from what type of lender.
Of course you have choices beyond shopping centers and offices. The primary asset classes to consider are industrial, retail, office, and multi-family. Large sub-segments include lodging (motels & hotels), and medical, and it filters down from there into sub-sub-segments, or niches. Lenders of course have their favored asset classes, as well as geographic targets, classified loosely as MSAs (metropolitan statistical areas) or primary markets, secondary and tertiary markets.
Lenders also will consider the borrower’s position post-acquisition, e.g., are they going to be the occupier/owner-operator of the business to be housed in the investment property, or simply an investor dependent upon a tenant(s) for their income from the property.
Simple enough! Let’s get started, but first a brief word about your acquisition.
When you find your property and are negotiating the deal, get your lender involved to take a look at the transaction to determine the “bankability”. Each transaction has a buyer and seller, and each purchase-sale contract has a silent 3rd party – the lender. In this process you may find yourself being bounced from lender to lender in search of one who has the type of loan that will work for your transaction. And this of course takes time … time at a critical juncture in the negotiating process.
Alternatively, you may want an independent loan agent (we’ll call him, or her, a mortgage broker) who can scope the transaction, ID your rocks & hard places, and circle interest to stage the loan with an actual lender or 2 (or 3) … and who works for you!
Hum-m-m-m-m-m-m … Well, you know where this leads. Call us for one-stop shopping, and counseling for your specific situation. As a broker we work for you, not the bank!
For specific counseling, give us a call at Counsel Mortgage.
Today’s post is written by Michael Green, Commercial Loan Originator for Counsel Mortgage Group, LLC.
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