Most people are familiar with the traditional financing options for commercial or investment real estate. Those range from the regular mortgage styles of financing to other regular, everyday methods.
Of interest are two particular types of financing which most people don’t normally consider. The first is the ability to structure quicker financing deals so long as the underlying real estate asset has sufficient value to the lender. Although usually coming from a higher interest rate, the asset/collateral-backed loan focuses more on the value of the asset rather than the financial stability of the person requesting the money. Whether the speed of getting the financing is a priority, or the deal cannot happen any other way, these types of loans have merit in certain circumstances.
When it comes to investment property, a metric often used is the After Repair Value instead of the Loan To Value (LTV). This accounts for the likely value of a property once repairs are made. There are several options in many cities such as those offering hard money lending for investment real estate in Dallas and Houston.
An entirely different type of alternative real estate financing deals with those looking for capital to develop commercial real estate. For those developers looking at development funding for NNN and Class A commercial real estate, they often have several risks:
- using their personal capital to finance the 20% equity
- attempting to secure bank financing
- finding equity partners
- delays and hidden costs with surveying, permits, etc.
- holding costs until the property is sold (assuming the developer does not want the property for his/her long-term portfolio)
- fees to a business broker or commercial real estate agent to sell the property to a qualified buyer
Depending on the strength of the tenant, there are some financing companies which offer 100 percent, no-equity funding. In essence, the developer gets his/her money without touching personal lines of credit or needing to secure bank financing because he/she will be dealing with the end buyer from the beginning of the process. This smoother process often entices a developer needing commercial real estate financing quickly due to the opportunity to develop several related properties at one time.