Getting the Money to Invest in Commercial Real Estate
Flipping houses is an exciting branch of commercial real estate for those who are creative, motivated, and seeking adventure. It can be quite lucrative, but such an investment requires a bit of money upfront, and it can be difficult to find traditional funding for those getting into real estate for business, particularly for fix and flips. Here are just a few of the ways investors can get the money they need to follow their passions.
Private funds, especially those of angel investors, are quite popular in the real estate world because they are not tied to the same regulations that government or institutionalized lenders are. Because of this, private lenders can offer more flexible terms that cater to your needs and get your money to you quickly. The drawback is that it’s far riskier to go with private loans. You’ll want to vet any potential lenders and judge their trustworthiness prior to signing any sort of agreement. Otherwise, if you have solid credit, sufficient collateral, and an ability to meet the terms of the loan, you’ll be in good shape.
With fix and flips and other types of major commercial real estate projects, large sums of money are required. Conventional lenders like banks and credit unions typically don’t involve themselves in commercial real estate because they don’t issue loans for what could be a million dollar project. However, the Small Business Administration and the Federal Housing Administration may be able to help. The SBA issues federally-backed loans that could value up to $5 million, often for specific purposes. The FHA offers a few programs such as the HomePath program, but because they’re federally regulated, they have strict requirements for how the funds are to be used. This can greatly reduce your flexibility if you have something specific in mind for your fix and flip.
The traditional method is through a bank or credit union, and generally, you’re restricted to a commercial mortgage. Conventional lenders do offer the least expensive commercial mortgages, making it a fairly affordable option for those who are in it for the long-term. However, if you’re on a short-term rehab project, a mortgage wouldn’t be a great option. A traditional loan is quite difficult to find for a fix and flip, especially without a significant down payment. Plus, you’ll want room to maneuver rather than be tied down by the specifications of a traditional loan.