Debt Options for Financing Commercial Real Estate

Hi, I’m Stewart Heath, CEO of Harvard Grace. 

Today I’m talking to you about commercial real estate financing. One of the reasons that we love refinancing or investing in real estate is because the use of debt is a lot of times thought to be bad. It can be if you abuse it as anything in life. If you don’t use it correctly it will come back to bite you.

The proper use of debt in real estate financing will actually enhance your returns. Beyond anything that you can imagine or with really any other investment class, real estate is incredibly financeable because lenders will loan you based on the hard asset of the property. Real estate doesn’t generally go anywhere. You can typically ensure around the other risks, such as fire or damages and things of that nature. Therefore it becomes a nice secure asset for lenders. They like to lend against it and when used properly, it will enhance your returns.

Then how do you do that? There’s there’s many different kinds of options. There are banks, obviously, which will typically give you a five year term, probably fixed rate with a balloon on that. Many of those rates are very attractive. It will almost always include a personal guarantee. There are credit unions that will perhaps go a longer term with a longer fixed rate, which are also very attractive. Almost always will require a personal guarantee as well. If you own more than you are able to occupy, there are some SBA loan options, but that generally doesn’t work for the real estate investor. Those are for businesses that own their own real estate. There are many, many, many private lenders that will do very attractive loans for you. The rates will be slightly above what the banks are currently offering, but the private lenders will typically do non-recourse which means the investors are not personally obligated unless they have what’s called the bad boy carve-outs. If you commit fraud or intentionally embezzle from the property and the rents and similar resources like that, they will come after you. If there’s a loan default through no bad actions of your own, then you’re not going to be personally held liable. There are online marketplaces where you can actually sell notes through the private securities market and create financing that way.

That is how you would be able to raise equity through a private placement. You could do a private placement of debt as well. So many options for debt when investing in a piece of commercial property.

 I would love to hear from you guys on some of the interesting ways you’ve come around to do debt in your real estate deals. So please ping back and we’d love to start a conversation. If you would like to learn more,  Grab Some Time with Me! Thanks and until next time!