When financing commercial retail property deals, keep these tips in mind:
• Financing is always 100%
• You always bring 100% of the money to the deal- just not always 100% of your money
• Financing is not just debt, although sometimes it can be
• You are the investor, so you get positive leverage
Most of the time, you should put debt on a property. It gives you leverage, if you can borrow for a lower interest rate than the overall rate on which you’re earning. However, you don’t want to put so much down on a property that you hurt yourself.
You don’t want to have too big a mountain to climb every month when you make that mortgage payment. In fact, you won’t, if you do the deal correctly. You don’t have to turn over control of the property to your equity partners, either, when properly structuring the deal using equity financing- just turn over some of the cash flow to them.
Tip: When learning about financing, don’t automatically think this is all about borrowing money. It’s more about using available resources.
When submitting your description of the property to obtain debt financing or raise money via equity financing, be sure to follow the guidelines of that property type’s governing associations and you’ll be taken a lot more seriously by potential lenders or private equity investors.
For example, if it’s a shopping center, you can obtain some important elements of this description from the International Council of Shopping Centers (ICSC). They tell you everything that’s important regarding retail commercial property, from regional shopping centers down to strip malls. You can find them online at http://www.icsc.org. They can also provide information on how to run a profitable shopping center business.
If you are just getting starting with financing commercial retail property deals focus on smaller deals that require less money per square foot to build or buy than those mega-deals. For example: in Orlando, Florida right now, you might be able to build a retail building for $120 a square foot, while in the same area you might be able to build a median-priced house for close to $200 a square foot.
You can rent the retail building for more money per square foot than you can get for the house, which is right there a plus in the favor of this property type over residential for your investing. In a nutshell, it also describes why many ‘real estate gurus’ are “full of it”. The truly wealthy among our society own commercial income-producing property, and do not typically ‘flip houses’ or invest in war zone residential neighborhoods.
Here’s a quick note for those of you wishing to build rather than buy. When buying a piece of land on which you hope to build commercial property, hopefully it will already be zoned. Being legally ready to go, you won’t have to worry about entitlements and other factors such as infrastructure or engineering studies.
This makes a more deal, when financing commercial retail property deals and for that reason we suggest if you’re going to go the build instead of buy route that you look for property that is going to have a comprehensive plan permit, zoned for commercial or put on the comprehensive plan as future commercial. After it’s entitled in that way, you can probably buy your land piece for a reasonable price and less hassle, on which to build.
In 1989, Stew Spence became a full time real estate investor, and has bought, sold or been on the business end of hundreds of r.e. transactions, both large and small, numerous diverse types of transactions totaling over $40,000,000 including commercial, mobile home park, and multi-family units. Now semi-retired, Stew is still an active investor and has trained thousands to succeed with real estate. Today, he is also retained as a Board of Advisors member with HIS Real Estate Network, residential and commercial real estate buying group.