As an investor, you never want to overlook the diverse and incredible opportunities in commercial real estate. Strip malls, retail plazas, warehouse space, and industrial properties are just a few you might think of right off the bat.
Once you have an idea of what you’re looking for, the next step is to figure out how to find funding. Very few buyers purchase real estate outright using their own money. Even those who could afford to do so will still look for creative ways to use financing to leverage and maximize their investments.
In residential real estate, you might not look much further than the traditional banks. But commercial is different, and it often pays to think outside of the box. There are numerous ways to finance a commercial property in Ontario. In this post, we’ll highlight a few creative solutions for investors at all levels.
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Understand Your Investor Profile
There’s no denying that investing in real estate of any kind requires capital, and commercial properties can run into the millions of dollars. The barrier to entry puts commercial opportunities out of reach for some people.
However, everyone has to get started somewhere. If you’ve got some equity behind you or have recently come into an inheritance or other financial windfall, commercial real estate can help you get your money working for you.
Understanding financing becomes easier once you have a success or two under your belt. At this point, you’ve also likely built your network, so there are more people you can call upon to make your case. Expanding your portfolio is the next logical step. To do this, you’ll need to learn how to generate capital at a higher level.
As you become more advanced, you’ll gain an even deeper insight into what it takes to buy and manage a commercial property in Ontario. When you get to this level, you might specialize in one area, such as retail units , or expand your portfolio to include different property types like industrial units. Whatever you decide, you will need access to even more capital and expertise.
Whether you’re an experienced investor or just starting out, the following sources of financing could help you get your idea off the ground.
Do you have your eye on a particular opportunity? Here’s How to Buy a Commercial Property in Toronto and GTA.
Traditional Lenders
Banks and traditional lenders can be more stringent with their requirements, especially for a relatively new investor. On the flip side, they can be easier to navigate since they are more familiar to you. If you have a significant down payment and impeccable credit, a traditional lender can be a relatively fast and streamlined way to finance your venture.
Commercial Mortgage Brokers
Another avenue is to connect with a mortgage broker who specializes in commercial financing. Once you have a clear picture of your investment goals, a commercial mortgage broker can act as an intermediary between you and multiple lenders who might be willing to finance your purchase.
An initial consultation will include a risk assessment and an analysis of your investor profile.
What does the latest market report mean for you? Find out in Do Stats Matter When Buying or Selling Toronto Real Estate?
Private Lenders
When traditional banks say “no,” many commercial investors turn to private lenders. Some lenders work closely with mortgage brokers to actively seek out potential opportunities. This could be a viable source of funding once you’ve found the right property. Going through private lenders can be faster while allowing you more flexible repayment terms.
However, keep in mind that there are also risks involved, and interest rates can be higher. You’ll need to use extra due diligence to ensure the terms are fair.
Construction Mortgages
If you plan to construct a new industrial warehouse or commercial building, you’ll typically need access to more funds than with a residential home. The zoning and the structure are different, and so is the financing process.
Constructions mortages are typically disbursed in installments that align with the phases of construction. The repayment terms are often much shorter with commercial as the lender is looking for a faster return on their investment. In addition, construction mortgages can have higher interest and a more stringent qualification process.
Equity Funds
Commercial investments, such as retail units, plazas or industrial warehouses, can offer a substantial reward, but they also require greater access to capital and involve higher amounts of risk. An equity fund raises funding through multiple sources, including individual investors and corporations.
The advantage is you could gain access to larger amount of properties and will be placed in a pool of investors to purchase the assets. However, keep in mind that these types of investments are dependent on good management, and property values fluctuate based on changing economic conditions.
A reliable expert is your best resource, whether you plan on buying residential or commercial real estate. Here’s Why Everyone Needs a Real Estate Agent For Life.
Your Network Is the Key to Success
No matter where you are in your investment journey, you need a skilled commercial real estate agent in your corner. Everyone’s risk tolerance is different, and lending criteria can vary. Individual guidance and expertise are critical if you want to reduce your risk and enjoy greater returns on your investments.
As an agent with an extensive background in the financial industry, I’m uniquely positioned to help you navigate the complex world of commercial investing. After asking some preliminary questions, I can direct you to the right resources to obtain the financing you need to achieve your goals.
For example, one of my clients was looking to expand their commercial portfolio into multiple locations, which obviously required vast sums of money. After learning more about the situation, I discovered that they had a huge advantage they weren’t fully leveraging – one of the larger properties was almost paid off and had a low loan to value ratio.
We pulled together multiple reports to show that the net income could easily support the monthly payments if they took out a smaller mortgage on the existing property to buy their next investment. Needless to say, the lender looked very favourably on this investment and was happy to provide the financing my client needed to expand. This is just one success story out of dozens.
As a commercial investor, having access to a professional network of experts is your lifeline. When you work with my team, we can connect you with the right people at the right time to give your ideas the best chance of success.
Are you ready to take your commercial real estate investments to the next level? I’m happy to guide you every step of the way. Reach out today to omarjanovic@kw.com or call 647.620.2882 for more information.
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