3 Alternatives To Commercial Mortgages

Finding the right financing for a real estate deal can be a challenge. There is a lot to be said about the traditional commercial mortgage, but it is not always the best move you can make. If you’re planning on paying over the entire term and holding the property for income instead of reselling, it might be your best move. If you’re looking to be out of the investment in under a decade, however, there are other forms of commercial real estate financing that will close faster and cost you less out the door in that timeframe.

This is especially true if you are looking to flip properties and planning to own them for less than a year because the extra time to close could cost you a deal. In those cases, it’s good to know all your options.

1. Bridge Loans for Commercial Properties

Short-term financing is not just for flippers, but they do tend to make good use of it. Asset loans that are set up for terms under three years with interest-only payments and fast closings have a lot of value to those looking to improve a property before moving in a business, especially if your business is property management. You can buy an apartment building or multi-storefront retail property, improve it with the capital you save by making interest-only payments, and then refinance into a long-term commercial real estate loan when your investment is making money.

2. Stated Income Property Loans

Real estate loans can be based on the earnings of a building if you have income property with equity to support the investment. These loans have a troubled history because they used to be based on the declared income of an investor alone, but the modern version is stabilized by using the income of a single building and securing the loan with the building. The difference between this and a commercial mortgage is that the loan’s value is based on its earnings, not its resale price.

3. Private Asset Loans

These products are somewhere between a traditional commercial property loan and a bridge loan. They tend to have terms of three to ten years and interest rates that are comparable to low-cost bridge loans, but they do not offer interest-only payments in most cases. Instead, the loans are designed to amortize over the course of their term. That term is just considerably shorter than it is for commercial real estate mortgages. The fast approval times and emphasis on property values over credit scores make these loans attractive to new investors.