Build or Buy? Financing Considerations for Commercial Property Investors
Commercial property investing can offer opportunities for future expansion, provide tax advantages, and diversify your income by creating another revenue stream. And the current market sets up favorable conditions for investing.
One of the main decisions in commercial investing is whether to buy an existing property or build new construction. Financing considerations should play a role in that decision.
Build or Buy?
There are advantages to both the build and the buy options. For instance, buying an existing property:
Usually enables faster turn-around for generating rental income
- Benefits from traffic for other properties in the neighborhood
- Often requires a slightly smaller down payment than a construction loan
- Has less complicated financing overall
When it comes to new construction:
You have more control over the building layout and can build to suit a particular industry or projected renter
- The building itself will be no or low maintenance for the foreseeable future
- You have the ability to choose location
Commercial Construction Loans vs Investment CRE Loans
Financing is almost always part of the equation when it comes to commercial property investments. The two most common types of loans are based on whether you build or buy:
- Commercial Construction Loan
- Commercial Real Estate (CRE) Loan
A Commercial Construction Loan has two phases: the construction phase and the mortgage phase. During construction, this type of loan can provide starter cash before you begin generating income from the property in order to pay contractors, architects, engineers, and more. This is typically a short-term loan of a year or less. Once construction is complete, a commercial mortgage loan is established for a longer term.
A Commercial Real Estate (CRE) Loan is less complex, usually only requiring a mortgage to front the money for purchasing an existing building and sometimes rolling in additional money for making improvements to the property.
In both cases, your business banker will want a potential investor to provide specific information to help assess the viability of your investment.
Come Prepared
Savvy investors do their homework. However, we also recognize that everyone starts somewhere. We’re happy to help you understand the process and figure out what information you need to provide, if necessary. Typically, investors come prepared with the following:
- Estimated expenses, broken down by category
- Potential revenue (how will this property make money?)
- Historical data or other research to support your budget (history of financials from previous owner or market study of new location)
- Projected timeline
- The amount of your down payment
- A list of partners you will include in the project, such as contractors and major subs, etc.
Consider Lake Ridge Bank Your Partner
As an independent community bank, Lake Ridge Bank has made it our mission to invest in the communities we serve. We want our neighbors and local communities to develop, grow, and prosper. It’s in our best interest if you succeed, so we work with you to make sure your commercial investment is sound and will provide the returns you’re hoping for.
Visit our website to learn more about commercial investment loan opportunities. Or, call your local Lake Ridge Bank location and ask to speak to one of our business bankers.