Commercial Real Estate Loan with no down payment guide, Online property loans information, Property finance
How to Get a Commercial Real Estate Loan with No Down Payment?
post updated 12 February 2024
If you are looking to purchase a commercial property, you are sure to be wondering whether you have the option to take out a loan without paying a down payment.
Well, while it is possible to get a commercial real estate loan without a down payment, you probably will not be able to do so with a traditional lender like a bank.
13 September 2022
An Overview of Commercial Real Estate Loans
Commercial real estate loans are typically made to business entities like corporations, limited partnerships, funds and trusts, and developers. The loans usually range from five years to a maximum of twenty years, and the amortisation period can often be longer than the actual loan term. A commercial real estate loan can be a valuable tool for investors to make money in the commercial real estate market.
Ways to Avoid a Down Payment for a Commercial Real Estate Loan
The methods for getting a real estate loan without needing a down payment are not as simple as getting a loan with a down payment, so you will have to use out-of-the-box approaches. You could potentially use one of the following methods to avoid paying a down payment.
Lease the Property Before You Buy
One option open to you is to lease a commercial property for your business before you purchase it. Once you have negotiated the rent amount with the property owner, negotiate how much of that rent can apply towards the purchase of the property.
You also need to agree on the price of buying the property and determine a timeline for changing from leasing to buying. Typically, this route of buying a commercial property without paying a down payment takes between three and seven years.
When the lease expires, the seller will credit your rent payments instead of taking a down payment.
Try the Seller Financing Route
With regards to commercial real estate loans, the term “seller financing” means the seller of the property finances your acquisition instead of the bank. So, the seller would hold onto the property and retain the mortgage while you pay loan payments to the seller.
Bear in mind that if you go down this route, you will probably have to pay higher interest rates or agree on a higher purchase price for the property in order for the seller to be comfortable with a down payment of 0%.
But if you can acquire the ideal property without paying a down payment, seller financing could be a good option; especially if you have credit issues, as sellers do not tend to perform extensive credit and background checks.
Use Subject-to acquisitions to Your Advantage
To use this method, you will need to find a specific type of seller. Basically, you need to find someone who is in a financial mess and wants to walk away from a property.
The subject-to-acquisitions approach for buying commercial real estate means you purchase a property with the seller’s existing mortgage. Therefore, you will be responsible for taking on the previous owner’s expenses and liability.
But it can be worth it if it enables you to purchase a commercial property for a good price and avoid paying a down payment.
Spend Time Weighing Up Your Options
Before you proceed with any of the above methods, spend time weighing up your options and performing calculations to discern which option is financially viable, just like you would do if you were looking to get a home loan from a mortgage lender like www.loandepot.com.
Commercial Real Estate Loan with no down payment – Final Thoughts
Getting a traditional commercial mortgage and paying a down payment might actually be the best option when purchasing commercial real estate. But if you are looking for an alternative option, consider leasing the property before you buy, going down the seller financing route, or using subject-to-acquisitions to your advantage.
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