If the bank says NO, DFS can get you a YES!
As a business owner, the importance of seizing investment opportunities when they arise is not lost on you. One such opportunity might be purchasing an investment property to generate passive income and diversify your portfolio. However, with real estate prices on the rise, this may require financing in the form of a commercial loan.
In this article, we will provide guidance to business owners seeking a commercial loan to buy an investment property.
Commercial property loans are loans designed to fund the purchase of commercial real estate, and, therefore, typically come with higher loan amounts than standard residential property mortgages. The access to larger loan amounts is one of the main benefits of using commercial loans to purchase investment properties, as they open the window of opportunity wider in the property market than using residential property loans.
You may be wondering how mortgages for commercial properties vs commercial loans work. Typically, mortgages suit buying properties that are homes, or contain up to four dwelling units, whereas a commercial loan is better suited for larger properties, such as an apartment complex with five or more dwelling units. Commercial loans are also used to purchase other types of commercial properties, such as office space, retail locations, and other properties built for commercial use.
Before you invest in a commercial property, check out these insider secrets:
When you look to buy commercial property, you’ll inevitably look at a range of property types, from warehouses, factories, multi-residential units or apartment spaces, office or retail spaces. What you may not realise is that the type of property you choose may offer the lender more security for the property loan than others.
For example, if you’re looking at newly built office space that is yet to be tenanted, this is likely to be viewed as a higher-risk investment in the eyes of your commercial loan lender than an existing office space, with an existing lease agreement in place. If you’re a new business or a higher-risk borrower (for example, if you or your business has a poor credit rating), then you may need to provide additional collateral to secure the commercial loan. This could include existing business assets or another property.
Commercial property investment involves a wide array of potential property types. When looking at a commercial property purchase, there are some higher-risk properties (from a lender’s perspective) than others (as we mentioned above).
For instance, assets including offices and warehouses are seen as “standard commercial properties” because they appeal to a larger pool of tenants, while spaces built for a specific purpose, such as hotels and service stations, are seen as riskier as potential tenants and buyers are limited only to businesses in that sector.
Interest rates for commercial property loans can vary greatly depending on a variety of factors. It’s important to understand how these factors can affect your interest rate to help you choose the right loan for your investment property.
One of the primary factors that can impact your interest rate is the lender you choose. Different lenders may offer different interest rates depending on their risk assessment of your application. For example, banks may offer lower interest rates but require more stringent credit and financial requirements, while private lenders may be more flexible with their lending criteria.
Another factor that can impact your interest rate is your creditworthiness as a borrower. Lenders will typically assess your credit score, debt-to-income ratio, and other financial metrics to determine your risk level as a borrower. If your credit score isn’t as great as it could be, we specialise in finding the right private loan with the best interest rate for your situation.
The type of property you’re purchasing can also impact your interest rate. Some types of commercial properties may be considered riskier investments than others, and lenders may charge higher interest rates to compensate for this risk. For example, a hotel or fuel station may be considered riskier investments than an office building, and may have higher interest rates.
Finally, the loan terms you choose can also impact your interest rate. Longer loan terms may have higher interest rates to compensate for the extended repayment period, while shorter loan terms may have lower interest rates but require larger monthly payments.
If you’re looking to invest in a commercial property, securing a commercial property loan is an essential step. However, getting approved for a loan can be challenging, particularly if you’re a first-time investor or have limited experience in commercial real estate. Here are some tips to improve your chances of getting a commercial property loan for an investment property:
By taking these steps, you can improve your chances of getting approved for a commercial property loan and set yourself up for success in the world of commercial real estate investment.
Some of the key differences between investing in residential property versus a commercial investment include:
Whether you’re buying commercial property for the first time, or making your next addition to your property portfolio, Diverse Funding Solutions can help property investors of every size access the best commercial property loan for their unique set of circumstances.
To work with a specialist private lending broker who will take your full financial situation into consideration, talk with the team at Diverse Funding Solutions. We have access to over 200 of Australia’s top private lenders to get you the best commercial property loan to help you reach your commercial investment objectives.
