When flipping commercial real estate: how do you get financing?
When we talk about flipping houses, usually we are talking about flipping residential properties. However, with the growth of the house flipping market, we've gotten more and more questions about commercial real estate flipping and especially how you would go about financing an acquisition that size.
In fact, a recent post over at Bigger Pockets has gotten us thinking that we should start getting into the commercial real estate flipping market.
When you make over $800,000 on a commercial real estate flipâ€¦we here at House Flipping School certainly take notice!
Special kudos to Brian Burke at www.praxcap.com for his awesome work - his post is a must read for any would be house flipper.
Traditional Bank Financing Pros and Cons When Flipping
Although we primarily advocate the use of other people's money (or OPM for short) to flip houses with no money, If you can get a traditional loan from a bank at a good rate and end up profiting on your house flip, you should definitely go that route first. However, with tighter lending restrictions now on residential mortgages, this can be a challenge. However, we do advocate going this route to start.
What we end up finding is that in most cases, it's just plain easier to use other people's money â€“ but if you have access to money through a lender, definitely start there.in the commercial real estate space, you should start your quest for financing by going through the traditional routes first. After that, you can then get very creative with how you structure a large commercial real estate flip.
Our friends at www.mortgagefit.com volunteered to write this guide below to help you in flipping commercial real estate, should you choose to go that route in your real estate investment career.
Flipping Commercial Real Estate: A Guide to Getting a Loan
If you planning to apply for a commercial real estate mortgage loan to start flipping commercial real estate, then you need to be patient as the entire process is time consuming as well as frustrating.
There are various types of commercial real estate, so it may not difficult to find a commercial real estate home mortgage lender. However, you need to be organized to obtain real estate mortgage loan quickly. When you plan to apply for the loan make sure you follow the steps give below.
Here are a few effective steps you need to follow to obtain a real estate mortgage loan:
1. Find a mortgage broker: You need to work with a mortgage broker to apply for the loan. You can package the loan on your own for submission when you plan to apply for the loan. Make sure you avoid multiple submissions as the lenders ignore them. Therefore, directly send the loan submission to the lender.
2. Keep a record of the rent roll on the property: Make sure you prepare detailed information on tenants or on the property if it is not vacant. You need to include the terms of the lease and keep a record of the rent roll. These are some of the documents that the lenders want to review.
3. Record of your financial statement: Make sure you keep a record of three yearsâ€™ financial statements on the property you want to finance. You need to provide three years of your personal tax returns as the lenders are interested to review the applicantâ€™s financial documents.
4. Write a loan application: You need to write a comprehensive letter to the lender requesting him to approve your loan application. Make sure you provide detailed information on the property when you apply for the loan. You need to explicitly explain why you need to take out the loan.
5. Compare the rates: Before you take out a home mortgage loan, make sure you compare the rates provided by different lenders. If you compare the rates, then you can manage to get the best deal. You can browse online to find the rates offered by different lenders on the loan.
6. Check the letter of intent: You need to check the letter you receive from your lender. Make sure you compare the loan offer provided by the lender like the interest rate, length of loan, points, closing costs and up-front costs.
7. Work till the loan is closed: You need to check whether the title policy is in order and find out if there are any liens on the property. You need to read the title report sincerely to get more information. Try to consult an attorney to guide you while reading the title policy.
If you keep the above mentioned points in mind when you plan to obtain commercial real estate mortgage loan, you will be successful financing your first commercial real estate flip!
What do you think? Is traditional financing the way to go when flipping commercial real estate? Let us know what you think by leaving a comment below.