Large Scale Commercial Property
What is a commercial property? A commercial property has the intention to make a profit by receiving rental income or capital gain. It can consist of office buildings, medical centers, industrial property, malls, hotels, retail stores, casino's , apartment complexes... It's even possible to let a residential building be qualified as a commercial building for tax and borrowing purposes when there are more than a certain number of units. This all depends on the different state laws. Inform yourself about them.
By looking at commercial real estate market you will notice that in the last years, there is a higher demand for safe, economical, high quality and quickly constructed buildings. The investors of large scale commercial properties are seeking properties that are usually valued between fifteen million and five billion US dollars. Some of these investors won't even get out of bed for a deal about a property that's under fifty million dollars.
The cap rate or capitalization rate is being used by appraisers, lenders and investors to make an estimate of the purchase price for properties that will lead to different types of income. When you divide the net operating income by the sales price or value of a property. It will be expressed as a percentage. By the evaluation of the financial data of similar real estate properties in the neighborhood that have been sold recently, the market cap rate can be determined. With all this info a more accurate estimate can be calculated. A cap rate of 6.5 percent or higher is advisable when you want a property that produces income.
The commercial real estate market has been rising in the last few years because the returns, with low interest rates, exceed those of alternative classes.
To buy a commercial property you will need a commercial mortgage. A commercial mortgage will be financing the land, the building, sub-structures, sometimes even certain equipment.
A commercial mortgage can be used to renovate, to refinance the original loan or to build additions. The life term of the loan can vary between 15 to 30 years and sometimes even longer. Ninety to ninety-five percent financing is mostly available with a commercial loan. Lenders will check your credit record and even if you are a new business owner with a good credit, it might happen that the lender will ask for larger down payment.
When you are choosing a lender it's for your own good to choose one that is specialized in commercial lending. He will have more knowledge of and experience in the market. He will even be able to advise you if it's a good idea to invest in this or that building. A commercial mortgage will cover more than than just the building, you will need some additional funding every now and then. Sometimes it is better to refinance the entire mortgage at a time like that instead of opting for two mortgages. Make sure to pick a lender that makes you feel comfortable and that seems to be on top of the commercial real estate market.