What different types of commercial real estate loans are available to investors in 2022?
Mortgage originators, their Wall Street investors in the secondary market, and real estate investor borrowers are all trending towards utilizing commercial real estate loans more. How can they be used, and how are they different?
1. Construction Loans
With tight real estate inventory levels and a need for more deal flow, many investors are turning to create their units. These are some of the hardest loans to get due to the increased risk. These are often short-term loans. After completion investors will sell off the property or refinance with a long-term fixed loan.
2. Fix And Flip Loans
The real estate market has been providing excellent dynamics for flipping properties for rapidly rising profit margins.
These loans typically go to experienced operators with a track record of flipping properties. They are short-term. Just long enough to complete the rehab and resell the property.
These loans may also include funds or reimbursements for renovation work. They are asset-based and tied to the after repair value of the property or loan amount to the total cost of the project.
3. Rental Property Loans
These business purpose loans can be used for single-family and multifamily rental properties. These are typically longer-term, fixed-rate loans for buying and holding commercial real estate investing.
These may work in conjunction with other types of financing to first make renovations and establish a track record of profitability and cash flow before locking into better terms.
These loans are based on both the value and income they produce. Normally qualified by their DSCR (Debt Service Coverage Ratio). They may be used for both short and long-term rentals and leasing strategies.
4. Bridge Loans
As the name suggests, ‘bridge loans’ help investors bridge financial gaps. Such as leveraging pent-up equity in current properties, to gain the cash to purchase new real estate assets.
This is especially useful when down payments or repair funds are needed for new acquisitions. Even more so when temporary financing is needed to optimize the property and financials before qualifying for better long-term rates.
5. Portfolio Or Blanket Mortgage Loans
These types of commercial real estate loans enable investors to finance multiple properties under one mortgage loan.
This may encompass three properties to 100. This provides a lot of efficiency for investor operators while reducing various forms of risk.
Instead of having to juggle dozens of loan payments each month, or apply for so many loans with all of the related fees, you may only need one. This helps eliminate paperwork mistakes and can lower overall finance costs.
These loans can be used for refinancing to optimize debt and repayments on an existing portfolio or to free up cash to make more acquisitions.
Summary
There are a variety of types of commercial real estate loans available to investors this year. Whatever your strategy there is a loan solution for it. Other investors may even want to get in on funding these loans and benefiting from investing in mortgage debt as private lenders.
