Commercial Income Property Financing: Part 1 of 3

Welcome to this first portion of a three-part series about income property. In this first segment we will be discussing financing options for commercial income properties as well as the upside (and downside) of owning this type of property.

If you're interested in getting into the income property business, chances are you'll need financial assistance from your local bank or private lending institution. You'll soon discover that making sense of the many different options available can be confusing if not down right frustrating. If you're new to the income property market you may be unfamiliar with some of the terminology you'll hear. The purpose of this article is to assist the novice in getting a good start in this potentially lucrative industry.

There are many different options available to you depending on the type of income property you're interested in investing in. Most lenders will recognize three separate and distinct types of property, each with it's own financing requirements. These properties include commercial, residential, and industrial income property.

Commercial Income Property

If you plan to invest in a commercial income property, you're probably planning to rent the building to retail businesses for use as office or warehouse space. As a commercial income property owner you can benefit from a perk not usually available to residential or industrial income property owners; you have the option to charge a percentage of your tenants monthly income in addition to a set monthly rent.

This percentage is usually based on the gross monthly sales revenue of your tenant. For example, the rental contract may include a $5000 per month base rent amount plus 5% of the tenant's gross sales for the month. If you're tenant brought in $20,000 of revenue last month, you get an additional $1000 on top of the $5000 base. You may be unfamiliar with this type of arrangement, but it is actually quite common.

If you purchase retail income property with good location in a growing neighborhood, this can be a good way to capitalize on your tenant's growing business without raising rent. Most income property owners charge from 5% to 10% of their tenants' gross monthly sales revenue.

When it comes time to finance the purchase of your commercial income property, a private lender can usually provide better options and interest rates than your bank or credit union. A private lender is in a position to provide the best option for two main reasons; 1) unlike your local bank, private lenders specialize in income properties (as opposed to home loans), and 2) private lenders are more selective in their loan requirements allowing them to provide better terms for those borrowers they accept.

Loan terms (the time the lender gives you fully repay the loan) for commercial income property typically ranges from five to twenty years. Many private lenders will also have a minimum and maximum loan amount which usually goes from $500,000 to $2 million.

Interest rates can run from 5.60% to 7.20%; substantially lower than the most competitive bank. It's also important to know your lender's LTV (loan-to-value) ratio. The LTV is simply the ratio of money borrowed on a property to the property's market value. In other words, you will have to come up with a certain amount money yourself before you will be considered for a loan. Currently, most private lenders offer LTV's of 70% to 75%. If you plan on financing the purchase a $1.5 million office building with a lender offering a 75% LTV, you will need to come up with at least $375,000.

In the next segment, Residential Income Property Financing: Part 2 of 3, we will be discussing how to finance and effectively manage an apartment complex.

Cameron Brown is an internet marketer specializing in investment property. For more information on income property, please visit Security National Capital

---

How to increase the Saleable Value of your Home

When selling your home, you'll want to fetch the best... Read More

How to Prequalify a Buyer When You Sell Your Home By Owner

One questions many "for sale by owner" sellers... Read More

Are Condo Hotels What the Orlando Real Estate Investor Has Been Looking For?

Earlier this year the Hawthorn suites in Lake Buena Vista... Read More

Home Owners: Disclose the Facts!

One of the most common causes for disputes occurring after... Read More

Real Estate Investing - Maximum Leveraging of Your Money

At this moment, you have access to some amount of... Read More

Make Money As A Slumlord

Be a slumlord? Okay, I got your attention, now the... Read More

What are the Top 11.5 Criteria for Selecting an Orlando Investment Property

1. Make sure units are larger than 1800 square feet.This... Read More

5 Hot Tips for Successful Real Estate Investment

The last downturn of the global stock market saw millions... Read More

Real Estate Investment - Why it is Big Business?

When examining the different asset classes, real estate is generally... Read More

Ten Creative Financing Techniques

Do all the creative financing techniques you hear about really... Read More

Ten Steps for Becoming a Successful Real Estate Investor

The secret to success in real estate investment is finding... Read More

On the Crossing of Continents

Cyprus is situated in the north-east Mediterranean on the crossing... Read More

Do You Need to Download a Landlord Inventory On-Line Today?

Do you need to download a Landlord Inventory on-line now?... Read More

Getting Ready to Sell Your Property

We all have had the experience of someone important coming... Read More

Real Estate Investing ? ?The Neighborhood Factor?

Real estate investing can be a dream career when the... Read More

Selling a Home ? What Personal Property Stays?

The home selling and buying process can be confusing, particularly... Read More

Looking into Buying Mobile Homes?

To own a home is one of the dreams every... Read More

10 Frequently Asked Short Sale Questions

1. What happens to the seller's credit rating when they... Read More

Property Investing - Am I Buying for Profit or Prestige?

All of us have emotional preconceptions and assumptions. They are... Read More

For Sale By Owner Listings

Selling your home on your own, without a Realtor, is... Read More

Achieving Positive Cash Flow from Your Real Estate Investments

Even if you're counting on rising property values to eventually... Read More

Real Estate Investing Produces Extraordinary Profits

Imagine making $5000 a year from real estate investing without... Read More

Investment Real Estate Made Easy ? Make the Most from Each Investment Dollar

When it comes to buying investment real estate, there are... Read More

Real Estate Investing: Beware of Subject To Promises

Another real estate writer's mini course, full of promises and... Read More

Before You Buy A House ? Top 10 Tips

There are serveral things you need to think about and... Read More

Log Homes - What is the Log-Home Lifestyle?

Typical log home company advertisements in popular log home magazines... Read More

Realtors - Self Promote Your Way To Success

Okay, so we all can agree - listings are the... Read More

Bulgarian Property Market Insight

GOLF GRABS BULGARIA!At the present time there are only three... Read More

OPM - The Art of Leveraging

Equity lender, hard money lender, private investor or what ever... Read More

How To Find An Experienced Monticello Illinois Realtor

Finding a professional Monticello Realtor in Illinois is the best... Read More

What to Look Out For When Buying Off Plan

Buying Off PlanIt can be difficult to decide when every... Read More

Create a Sizzling Home Sales Flyer

Did you know that the sales flyer is the most... Read More

California Home Seller Disclosure Duties

Property Condition - Seller's What to Expect During the Inspection... Read More