How can you buy commercial real estate with little or no money?
Those who want to borrow money to buy an investment property can usually get it. You can actually acquire commercial property for millions of dollars without putting any of your own money down. In the world of Commercial Real Estate, the wealth of the buyer isn't as important as you may think; many multi-millionaire commercial real estate investors earn their money by not using their own money! It’s true.
Consider the following four approaches:
Subordination, also known as creative finance, happens when the present owner of the property takes out a second mortgage to cover monies that the buyer is unable to raise on his or her own. If you're fortunate enough to locate a seller who would subordinate a second mortgage to cover what you can't pay, the only money you'll have to spend is a down payment.
When adopting this strategy, it's a good idea to have the owner subordinate just for a short time — just long enough to pay off the second mortgage with the money earned from the commercial property, leaving the owner free of the property. Payment for the property may be made at this time since you will have made money from the business property.
This scenario may seem backwards at first, but if you discover an owner that is eager to sell and knows this way of investment, it may work out rather nicely. In the end, you'll have spent no money of your own on your income-generating property, and the prior owner will be compensated.
Keep in mind that the property must be able to handle the loan, since you don't want the owner to default on the second mortgage. Some business owners are leery about this form of investment since buyers may breach contracts and create complications. To keep a reputation of performing in the manner that you and the seller agreed, try to be a trustworthy investor.
Make use of partners/collaborators.
There are skilled builders, investors, and developers who can discover the money you need if you are ready to put in the effort. The arrangements might vary widely, but your partner(s) will fund the transaction and share in the profits you generate. Partners may provide significant knowledge and insight into a certain kind of property, as well as the industry as a whole.
If you are unable to get a loan to acquire a big property, consider purchasing a portion of it. You may then use one item as collateral for a loan to buy the entire lot. This method works particularly effectively with undeveloped land, although it may be used for a variety of scenarios. Owners may not be aware of this possibility, so be sure to tell them about it, particularly if you're buying a large piece of property.
Make sure to get the property examined by a licensed InterNACHI inspector before completing a commercial real estate transaction. InterNACHI inspectors follow a code of ethics as well as the International Standards of Practice for Commercial Property Inspection. It may be difficult to get outside finance, but having a professional commercial property inspection done correctly does not have to be.
If you will be using the property, or at least 51% of it, for your own business, SBA federal loan programs may be available to you for the purchase. These programs traditionally offer very low “out of pocket” requirements by keeping down payments low. Pillar Real Estate Advisors suggest working with your commercial real estate agent for recommendations to lenders who are “Preferred” SBA lenders. These lenders can FastTrack what can be an arduous process with regard to documentation requirements from the borrower.