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How to Finance Commercial Property Investments

Posted by John Igbaifua on December 16, 2022

There are many routes toward investing in commercial property. Some are direct, i.e. involving the direct purchase of the building, and others are indirect, e.g investing in property investment companies or through REIT (Real Estate Investment Trust)

Commercial property investment can be made using 3 broad methods.

1. Direct Investment- In this type of investment, the investors buy the property. They can still use it for their business, let it out on a short-term or long lease basis, or change or redevelop the building in some ways.

2. Direct Commercial Property Funds- Also called brick-and-mortar funds, this allows investors to invest a flexible amount into a portfolio of buildings owned by the fund

3. Indirect Commercial Property Funds (REIT)- this type of investment is a collective scheme that invests in commercial real estate companies listed on the Stock Market.

In situations 2 and 3, the investor will not need a mortgage or any sort of typical property financing. Direct investment usually requires finances unless the businesses are cash buyers.

Commercial mortgages vary considerably on the risk posed by the investment. Mortgage providers will look at how easily rent and/or the turnovers of occupying businesses can service the debt.

Commercial mortgage rates tend to be higher than residential mortgage rates due to the increased risk of lenders, but it’s hard to generalize.

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