Purchasing Commercial Property with Little or No Money Down!

People who think that just because they don’t have a lot of money they cannot invest in real estate are WRONG. There are ways this CAN be done. How, you may ask? This article will explain that. There are actually a number of ways to buy property without personally having much money. Let’s look at them.

One fairly obvious way is to borrow the funds for the down payment. There will be lenders who can give you a low interest rate; OR, a special kind of loan such as a home equity loan or a personal line of credit. A not-so-obvious choice is to borrow the money against your real estate broker’s commission. There ARE brokers who are willing to do this; most often on a short-term basis. It is a good idea to seek professional legal advice when doing this to make sure everything is done correctly.

You can also arrange to do a lease-option on your chosen property. This is where the owner will accept a periodic payment from you (typically a monthly payment) and have a portion of each payment go towards an eventual down payment. If you are lucky you might be able to find an owner who will allow ALL of each rental payment to go towards the down payment. Again, you will want to have all contracts drawn up by a real estate lawyer to make sure everything is spelled out exactly as both of you want it. This will avoid numerous and painful headaches later on.

A different thing you can do is called “assuming the existing owner’s mortgage.” In this method you are using the seller’s mortgage as a down payment for at least part of the total amount sought. It will work even better for you if the seller has a low interest rate on this mortgage. In this kind of arrangement it is wise to do your homework. Have your lawyer advice you on what to look for in your studies of the existing loan. If there is anything that prevents someone from assuming this mortgage, you will want to know about it immediately and STOP THIS DEAL!

One more great idea is to go into this venture with a partner, especially if they are a silent partner. It could take you a lot of work to find experienced investors who will supply the money needed for you to own the property in question; but it will be well worth your efforts. Usually this investor will want a piece of your action. This means they get a share of any returns on investment you get. This is especially helpful if you are a novice in the real estate investment business but want to become an expert. These partners can serve as mentors for people like yourself and their wealth of knowledge is priceless.

Yes, investing in real estate with little or no money to put down CAN be done. When done correctly it can be a great venture for you for years to come.

Article Source: http://EzineArticles.com/?expert=Bill_Len

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A Guide To Commercial Real Estate Loans

Commercial real estate (CRE) is that branch of real estate that is used solely for business purposes and monetary gain. This includes retail outlets, office buildings, business parks, hotels, and residential complexes. Financing these business ventures typically comes from commercial real estate loans. These loans are secured by liens on commercial, rather than residential, property.

Differences between residential and commercial loans:

Individuals vs. entities

Just as with residential loans, banks and individual lenders are actively involved in handing out loans for commercial purposes. While residential credits are most often given to individuals, commercial advances are given to business entities such as corporations, developers, and partnerships. These entities are often formed for the specific purpose of owning commercial real estate.

Loan repayment schedules

The debt for a residential mortgage loan is repaid in regular installments over a fixed period of time. This makes it an amortized loan.

Unlike residential loans, commercial loans are paid over the course of 5 to 20 years from the day of procuring the credit. The amortization period is often longer than the term of the credit. The rates of interest the lender charges depends on the length of the loan term and the amortization period. The longer the loan repayment schedule, the higher the interest rates.

Interest rates and fees

Commercial loans are subject to higher rates of interest than residential credits. In addition, commercial real estate loans include fees that add to the overall cost of the loan. This includes fees levied on appraisals and credit application.

Prepayment on commercial real estate loans

If investors settle the debt on their commercial loan before its maturity date, they will be required to pay prepayment penalties. These penalties are of 4 types:

Prepayment penalty– This is calculated by multiplying the current outstanding balance by a specified prepayment penalty. It is the most basic of these penalties.

Interest guarantee– The lender is subject to a certain amount of interest, even if the loan is paid off early.

Lockout– The borrower is not allowed to pay off the loan before a certain specified period.

Defeasance– This acts as a substitute for collateral. Instead of giving cash to the lender in exchange for their collateral, they give new collateral.

In conclusion, residential and commercial real estate loans differ vastly from each other. When evaluating a business entities’ vie for a commercial real estate loan, lenders consider the loan’s collateral, the creditworthiness of the entity (owners), and the financial ratios.

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