Alternative Financing Options for Commercial Real Estate

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Despite the fact that banks are not lending like they used to on construction projects and commercial real estate there still exist many alternative financing options for the commercial real estate investor who is willing to do some leg work and research. The following are a list of alternative funding sources that are being used in today’s market.

  1. IRA and Retirement Accounts: It is now easier than ever to tap into retirement accounts for the purchase of real estate. There are legal services that give business owners and real estate investors the ability to transfer money from their 401(k) and IRA to a C corporation. Once the funds are deposited into a C corporation they can be used to purchase real estate without paying taxes or penalties due to the transfer. It is important to seek the counsel of a tax professional to ensure that you are abiding by all laws and regulations.
  2. Stimulus Money: There are many stimulus programs now available from state and federal governments that may assist the commercial real estate investor, developer or business owner. Low income multi-family projects may qualify for tax breaks and grants from the county or city government where they are located.
  3. U.S. Small Business Administration (SBA): While most other kinds of traditional financing have seen major cutbacks, SBA loans are actually increasing in today’s economy. Government guarantees have increased all the way to 90% as part of the recovery act. The SBA’s 504 program is a useful investment vehicle for owner-occupied business real estate which allows the owner to put down as little as 10%.
  4. Seller Financing: Many commercial real estate owners are finding that they need to sell properties to cover the expenses of maintaining another property that is under performing. These owners are forced to sell, often times, because they are unable to find refinancing. Many of these commercial real estate owners will also be open to the prospect of offering seller financing at a very affordable rate.
  5. Friends and Family: It can often be awkward and uncomfortable to ask a relative for a loan. However, they often will trust you, and now there are social lending websites that will create a formal loan document between the lender and borrower. The interest rate on a friend or family loan will generally be higher than a bank but lower than a credit card. Another advantage of a family and friend loan is the fact that you will not have to qualify with your credit score.

Photo: kennymatic

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3 Comments

  1. Ted,

    You made an interesting statement in point #4.

    You said that,

    “Many commercial real estate owners are finding that they need to sell properties to cover the expenses of maintaining another property that is under performing.”

    Personally, I think this would be good use of seller financing.
    Thanks for raising this point.

    Regards,
    Neil.
    .-= Neil Uttamsingh´s last blog ..How you can make $450,000 in ten years by doing no work =-.

  2. Good recap.

    Most of the commercial deals I’ve been a party too have involved some level of seller financing, especially the larger deals where traditional financing falls short. It’s a great way to make these deals work, and a great negotiating tool.

    I haven’t really seen the 401k/IRA investing catch on in commercial though, except for much smaller commercial properties. This is primarily due to the need for non-recourse financing, which is not readily available except for those with deep pockets or very low LTV’s.
    .-= Craig Grella´s last blog ..Welcome to Cornerstone =-.

  3. Seller financing is a great way to sell commercial property, and most any property for that matter, It can open the door to get real estate sold. I work with a network of investors who buy seller financed mortgages, if you come across someone looking to get a lump sum of cash instead of waiting on monthly payments, I specialize in helping people like that.
    Sincerely,
    Richard Yoder

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