If you think you might be interested in tackling the commercial real estate investment niche, it’s a good idea to have some understanding of it. This will help you decide if it’s truly right for you. In this blog, we’ll explore what a commercial real estate loan is in case you don’t have the funds you need to get started.
What is a Commercial Real Estate Loan?
It is a mortgage that is specifically designed for the purchase of a commercial property. Commercial property is used for business purposes, not residential. There are several financing options for those who are considering this type of investment. It’s important to note that a commercial property loan isn’t made out to individuals, but to business entities. This means that you’ll have to form a business, such as an LLC or S-corporation.
How Does a Commercial Real Estate Loan Work?
A CRE loan is different than a residential loan in that they are only used to finance commercial property. An individual must form a business entity to qualify. The property must be put up as collateral to secure the loan. If the borrower defaults, the lender could take possession of the property.
One common factor between the two types of loans is creditworthiness. However, in a CRE loan, the lender examines the potential for income-producing when deciding whether to approve the loan or not.
CRE loans carry a higher risk than residential loans. Although, the potential revenue of the commercial property is an incentive.
Is it Possible to Get a CRE with No Money Down?
Yes, if you don’t have the funds for a down payment, there are some options. You can use a purchase money mortgage, a hard money lender, or get a partner. Residential real estate investors may have been afraid of CRE investments in the past due to the belief that they are at higher risk, or the down payment is too high. However, by getting to know the basics of commercial real estate, it’s easy to see that it’s not that out of reach.
As you can see, one of the major obstacles to CRE investing is the lack of funds- but there are options. Contact Aspen Capital Solutions to learn more about your options when it comes to investing in commercial real estate. We would love to offer you our expertise.