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4 Silly Mistakes to Avoid While Financing a Commercial Real Estate
Investing in the commercial real estate space could be one of the best decisions you ever made. It is one of the best-kept secrets of many successful investors as well as entrepreneurs. Whether you are already associated with the real estate marketor are a newbie to this industry, the rewards you can reapin this industry are second to none, which you will soon learn.
Commercial properties are all about ROI (Return-on-Investment). If you are thinking about making a move in this field, then you must have factored in the exorbitant asking price which these estates command. Luckily, Commercial Real Estate Financing eliminates financial constraint from the mix, which makes owning a commercial property effortless.
When it comes to buying or selling commercial estates, financing can make or break the deal. You should keep an eye out for a good mortgage because it helps you to maximize your ROI. All of it might seem obvious, but you’d be surprised at the number of people who pay little attention to profitability while looking for a commercial mortgage.
Today, we will be throwing light on 4 of these blunders so that you can avoid them and ensure the most bang for your buck.
1. Not getting pre-approval.
One of the most important things in a property search is the budget. Many individuals guess an amount which they think they can afford to pay back, and then start their search accordingly. However, little do they realize that the lenders might have contrasting views. These days, lenders are very skeptical and only grant loans which they deem safe.
So,before you begin your search, it is vital to make sure that you are pre-approved for a specific amount. This narrows down your search to a certain price bracket. It also saves you from the trouble of finding a great deal, but later realizing that all your efforts were for nothing because the lender refused to sanction your loan. In addition to it, the turnaround time for pre-approved lenders is also a lot lesser as compared to those who apply directly.
2. Borrowing more than needed.
Some individuals make the mistake of maxing out their budget to buy a commercial property. As a result, they are often left with little to no funds. You need to avoid this kind of situation at all costs as life is full of uncertainties, and nobody knows what will happen next. This is why you should always keep some spare funds for a rainy day.
Furthermore, when you are left with such limited resources, you might have a hard time in making any changes or repairs to the property you purchased. If you bought it for your personal use, even then the deficiency of funds will dampen your joy.
3. Shopping too little earlier, shopping too much later.
Some people do not shop around and compare loan terms which different lenders offer. They simply go down to a local lender and apply for a loan. If it gets approved, they blindly accept all the offered terms. Not so surprisingly, they often end up paying quite a premium over the borrowed amount, thus rendering commercial real estate financing ineffective.
It is just as bad the other way around; finding a favorable mortgage that fulfills your needs and even then continuing to shop! You got what you wanted; there is no point of being greedy over a few basis points. There are many reasons behind it. Firstly, in case the rates go up, the terms of the deal will change. Think about it, in search of 0.05% lower rate, the market rate rises, and now you need to pay 0.50% more. Whoops!
Secondly, the lenders have limited funds for lending. Once all the loans have been secured, they will stop lending. Do not be penny wise and pound foolish and lose a deal that would have spat out over $50,000 over the next five years, for a mere $30-$40 reduction in your mortgage. Doesn’t make a smart choice, does it?
4. Failing to consider other expenses.
This is another classic mistake which some folks, particularly first-time buyers, make. At the time of signing the dotted line, they only think about the cost of the property. They often underestimate or even forget several other costs which add up in the total cost of ownership such as: -
- Insurance
- Inspection Report
- Stamp Duty
- Council Rate
- Transfer Fees
- Operational Cost (Water, Electricity, Upkeep, and so on)
- Closing Cost
It is vital that you keep track of all the necessary expenses and manage your finances accordingly. You should make a provision for these payments beforehand to avoid any surprises at the eleventh hour.
These mistakes are often repeated by several individuals. They not only have the potential to lower your ROI but also to wipe it out completely. Keep a safe distance from these four pitfalls,and you will see your profitability soar right next to the clouds! For more information on commercial real estate financing in California region, give us a call @ 909-377-3137 or drop a message: bb@arrowbcd.com