You have probably heard about the commercial real estate bubble, here is the ugly truth that lenders and other insiders do not want you to know. Despite all the hype, each commercial property is not in trouble. The key to you as an investor is to avoid some traps and learn from other investors.
Before the economic and credit boom that led to the recent slowdown, conventional lenders capped the 65% loan amounts of the value of the property. This means that your $ 10 million commercial property would be eligible for a maximum loan of $ 6.5 million. Current problems with commercial real estate investments have begun when capital funds and private equity lenders have begun to offer much higher loan ratios to value ratios, which would allow them to prove your investment goods until at 80% of the value of real estate.
Mistakes made by commercial investors
Some investors have decided to refinance their $ 10 million commercial property for $ 8 million and get $ 1.5 million without tax! What seemed to have a lot of agreement at the time returned to ruin the typical commercial real estate investment. The problem was that these loans should be refinanced after five years. The owners who shot money out of their investments like this began on a path that led to the problems we see now.
Fast forward from there and you will see that the whole economic climate has changed. Most sources of financing for commercial real estate dried. Owners who have a property that needs to be refinanced is to note that unless the LTV ratio is 65% or less and that the property is done perfectly, it is almost impossible to refinance for their commercial real estate investment.
You can not support these coverage funds and private equity companies, because many of them have gone in commerce. So you are left with two options:
1) Create a workout with the existing lender where they refrain from the saving of your property in exchange for a slight increase in the interest rate or another advantage that you can give to the lender. In some cases, the lender profit is that they do not need to recover your property. The truth is that the lender really does not want to resume your property if he can avoid it.
2) Bring other investors in your agreement by offering them a decent rate of return on their investment, as well as give them some of your equity. Make sure to contact a commercial real estate investment lawyer who can help you meet all the instructs if it is the way you choose to fall.
What makes a secure commercial real estate investment
The problem with many business buildings is today that they have had a business with a larger loan than otherwise. Now, these business owners can not come out of the recession because the loans become due and they are short, or worse, upside down.
Investment rule n ° 1
-Leach equity in your property.
· Successful owners do not come out of their equity at the top of a growing cycle; They leave equity in their commercial real estate investment so that they can go out slowdowns. The “commercial merger” does not apply to owners who have left their equity intact. Although it is true that commercial property values have come down from a high vertex. The typical commercial real estate investment is much more valuable today than 10 or 15 years ago.
INVESTMENT RULES N ° 2
-Stick with conventional lenders.
· By taking a short-term loan, commercial money owners have placed at the mercy of the fictitious market. A classical lender would not have funded more than 65% of the value of the property, allowing the owner of a cushion against fluctuating property values.