Commercial Financing

If you have investing in single family houses, duplexes, or 4 units, you probably do not know much about commercial financing. When it comes to buying houses for cash in Pittsburgh, you will need a private financing partner, or literally your cash saved up. Now this is a great way to begin investing and purchase properties at a discount due to the great terms. When it comes to larger buildings, that is when commercial financing comes into play.

What is considered a larger building? This would be anything greater than 4 units in one property. This is very common with apartment buildings. The whole process is different once you enter this game. For starters, the way you evaluate the property is different. For residential properties, the lender will research based off an appraisal and recent comparable sales in the area. This means recent properties with similar structures, square footage, and updates, to determine a market value.

For commercial lenders, the research is based of how much income the property produces or can produce. It is based off the Cap rate, which is the net income the property produces after all expenses divided by the total investment. This is different because residential owners are buying an apartment building for their family. Essentially only investors are seeking these opportunities, so the banks place a value on it based off the investment income the property can produce.

The next key point for commercial financing is the underwriting. When buying a commercial building, the lender actually focuses more on the property itself as opposed to just the borrower. While they will absolutely do their homework on the investor, the deal itself holds a lot of weight compared to a residential property. They want to see how much the property can produce to determine if it is a risk they are willing to take on. This setup can be very appealing to investors as there are less hoops to jump through with the underwriting.

There is no right or wrong property to buy. It all comes down to what the investor is comfortable with and how much capital you have at your disposal. It is important to determine all the financing options ahead of time before locking into a purchase agreement. Then you can weight the options and see which is the best fit for you and that particular project.