June 06, 2016
This article is a continuation of the previous article, which looked at commercial construction loans versus investment real-estate loans. Again, investment real-estate loans refer to commercial properties that have been built.
For a quick review of the previous article, there were 5 things covered illustrating the differences between commercial construction loans and investment real-estate loans.
There is a lot more knowledge required, and complexity involved in commercial construction loans. And, you need a Pro Forma, whereas with the majority of investment real-estate loans, you do not.
A commercial construction loan could have two loans involved - the first one includes new construction, as well as the lease-up phase - the second loan is the permanent loan. Next, there is quite a bit more risk involved with commercial construction. And lastly for the review, having past experience is more of a requirement for commercial construction financing versus investment real-estate financing.
For this article, we are adding four additional differences between commercial construction financing, and investment real-estate financing.
- There is a huge amount of documentation/paper work required for commercial construction loans compared to investment real-estate. You’ve got architectural, city permits, builder documentation, Pro Forma, as well as more paper work required for the investor - just to mention a few.
- You have a much bigger team of people working with you for commercial construction than for investment real-estate, which makes the loan more complex. There are different city people who require certain permits, processes, and documentation. There is the architect, builder/developer, subcontractors, workers, etc.
- There is a much greater amount of time from the start to the finish of a commercial construction loan. To get permits and meet all requirements before the start of building can take quite a few months. The construction phase could take most of a year or more. The lease-up generally requires months of time.
- For commercial new construction, you need to research the demand for the type of project you are doing, otherwise you can greatly weaken your chances for a loan. For example, if it’s a new construction multifamily project, you need to research the demand the city has for new multifamily construction. You want to pick a city that has high demand for apartments which will result in higher rents and a quicker lease-up time. To not do adequate research of this step will diminish your chances of a loan.
Contact us to see if you pre-qualify for our best multifamily, commercial, bridge, construction, or business loan rates and terms. Also, contact us if you would like to discuss your particular commercial lending needs, or if you have any questions. Call 214-695-7310, or send an email to email@example.com
To discover more about our loan products as well as rates and terms, visit our loan programs page.
Bruce Painter, Director of Marketing, Business Loan Store