You will find few commercial real estate investors paying for everything with the funds they have on hand. Real estate transactions involve large sums of money. Commercial real estate debt financing plays a role for even the world’s largest investors.

Debt financing is any capital an investor borrows to fund a transaction. You might use debt to purchase a property, fund construction, or refinance commercial real estate. There is a lot to know about debt financing, and this post will cover the basics of debt in commercial real estate financing.

The Basics of Commercial Real Estate Debt Financing

Interest Rates

Just like with any loan, commercial real estate debt comes with interest. Similar to a home mortgage, the loan could have a fixed or adjustable rate. Interest rates can also vary depending on a range of factors.

The Term

Commercial real estate loans will have a term for the borrower’s repayment period. The term of the loan can vary depending on the borrower’s needs and the loan’s purpose. Some are as short as a year, while others might be as long as 30 years.

Lenders

Real estate investors might acquire debt financing from several lenders. Some might even pull multiple sources of debt financing together for one investment. Banks and mortgage companies are common sources of debt financing. Life insurance companies, real estate investment trusts, and private equity firms also issue commercial real estate debt.

Collateral

Most commercial loans require collateral. Lenders want to protect the investment and ensure they can recover funds if the borrower doesn’t make payments. In most cases, the property is collateral for the loan. If the borrower does not pay, the lender could start foreclosure and seize the property.

Types of Loans

The commercial real estate industry also has several types of loans. Commercial mortgages are a common way to fund purchases. Construction loans can fund building properties or improvements. Bridge loans can serve as short-term financing while you wait for conventional loans to come through. Loans may also vary depending on whether the structure is owner-occupied or strictly for income generation.

Payments

Commercial real estate debt financing can have various payment structures. Longer-term loans have a structure more like a home mortgage. The investor makes monthly payments that include interest and principal. Short-term loans usually involve making interest payments until the end of the term. At that point, they pay the total balance.

Do you need help with commercial real estate investments in Columbus, Georgia? Click here to contact the Cummings Commercial Team. We are CRE experts ready to help buyers and sellers navigate the local market.

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