Real estate loans are the types of loan used to buy land or buildings.
In other words, it’s – as any other loan – a temporary provision of financial resources, but which is secured by a mortgage.
There are many things to consider before buying your first rental property. The first one being, whether or not you can afford to take a real estate loan in your current financial situation.
How Do Commercial Real Estate Loans Work?
Commercial real estate (or commercial property) is a term used to describe buildings or land that are or will be generating revenue. That can be by renting it, or selling it.
It’s for business purposes only, and can include retailers, hotels, restaurants, offices, and more.
This is a type of real estate, with the other 2 main ones being residential and industrial real estate.
Taking a loan for a commercial real estate deal means you’ll need to evaluate your options, study the terms (real estate loans might vary from 5 to 20 years, but there’s also the 30-year fixed rate mortgage) and know how you’ll turn this investment into profits and in what time.
The commercial property we’re talking about should be generating income in the long-run. It means you also need to have a business plan, show how you’re planning to do that, and why it’s more than just a business idea in your head.
Let me give you a simple example of a situation where such real estate loans make sense:
You already have an established small business. Depending on whether it’s fully digital or you’re operating from a physical office, it might mean you’re already using commercial real estate.
If you decide it’s time to scale, though, or partner up with someone and start working on something new, you will be eligible for a commercial real estate loan to help you out financially.
You’ll use it to purchase the commercial property and start reaching the business objectives you had in mind for it.
Commercial real estate loans are used for commercial property (not residential), and are taken by businesses (not individuals).
Some things to keep in mind when taking a real estate loan
Most lenders might require a down payment, so be prepared for that.
But that’s not the only way the other party is protected. A lien is used to make sure you do pay back, even if you don’t have it.
That’s basically a legal right given to you by the owner of the property. It’s there to state that the repayment is your obligation. If you can’t meet this after the agreed amount of time, the property will be seized and sold so that the lender receives his money back.
The interest rates might vary. They depend on the kind of business you have and its performance, and your credit reputation.
Whether or not you’re worthy of real estate loans, or any other major loans for what matter, depends a lot on your experience in borrowing money and your credit score.
The latter is something your lender will most probably look into to see the chances of you repaying the money in a time suitable for both parties involved. That data is also used to determine the interest rate in your commercial real estate loan.
If you’re thinking of buying rental property, you should begin doing your research on real estate loans today, understand how exactly they work, and be prepared with all the information when the time for taking a mortgage loan comes.