COMMERCIAL RENOVATION LOANS FINANCING YOUR REAL ESTATE PROJECT

19 May 2020

Purchasing a property to renovate with commercial rehab loans, retrofit or modernize – or even planning the same for a property you already own – is an exciting venture that requires the right funding to ensure that you’re optimizing your return on investment. In most cases, a commercial construction loan is the ideal option for investors or businesses looking to improve a commercial property.

WHAT ARE THE BEST COMMERCIAL RENOVATION LOANS REHAB & CONSTRUCTION LOANS?

A commercial construction loan is a specific loan used to finance the cost of building or renovating a commercial property. As this can be a costly pursuit – hundreds of thousands or even millions of dollars depending on the scope of the project – most businesses or investors rely on funding to see the work through. Like all loans, there are advantages and disadvantages and doing your research will go a long way to make sure you’re choosing the best option for you. Here’s our starter guide to commercial purchase and renovate loans to bring you up to speed on the basics.

• WHAT COMMERCIAL RENOVATION LOANS COVER. A commercial renovation loan is designed to cover the costs involved in renovating, modernizing or repairing an existing commercial property, such as payment for materials and labor. If you are choosing a purchase and renovate loan this will cover the cost of the works as well as the purchase of the property. Commercial rehab loans can be leveraged by real estate investors to adapt to new markets.

• HOW COMMERCIAL REHAB LOANS DRAW SCHEDULE WORKS. Unlike commercial loans used solely for purchasing a property, purchase and renovate loans aren’t issued upfront in one lump payment. Instead, renovation construction loans are generally structured with a draw schedule which means you’ll receive partial payments as your project moves forward and reaches specific goals. For instance, you may receive the first payment when you settle on the purchase of the property and another installment when it comes to clearing the land and laying the concrete. This process continues until the full amount has been dispersed and often requires an official inspection at each stage so that the lender can ascertain that the project is progressing as expected. When choosing construction loans or commercial renovation loans , you can work with your broker or lender to structure a draw schedule that best works for you and your project.

• INTEREST PAYABLE ON PURCHASE AND RENOVATION LOANS. The other thing to note is that if your loan is operating with a draw schedule, you should only be charged interest on the portion you’ve actually received and not the full value of the loan. So, for instance, if you’re borrowing a million dollars but have only received the first $100,000, interest should only be payable on that $100,000. Often renovation construction loans are structured so that you won’t be liable for paying any interest at all until you’ve received the full loan amount.

• PURCHASE AND RENOVATION LOANS CAN BE USED TO FUND A RANGE OF PROPERTY TYPES. Commercial renovation lenders like us at Alpha can provide funds for various property types including commercial, industrial and mixed-used properties. We have funded numerous projects including the purchase and renovation or rehab of apartment and condo buildings, warehouses, retail premises, office buildings and restaurants as well as hotels, motels and resorts. For other variables a short term commercial bridge loan can be an optimal choice for investors.

• CERTAIN FEES WILL BE APPLICABLE. Like any loan, you can expect to pay an interest rate that is generally higher than more traditional or straightforward loans given the high-risk nature of commercial construction loans. You may also face other fees such as guarantee fees, processing fees, documentation costs and fees for project review and fund control services.

• COMMERCIAL RENOVATION LOANS REQUIRE A DOWN PAYMENT. The loan-to-cost ratio for a commercial renovation loan is typically around 75 to 80% of the project’s total cost. Accordingly, you should be prepared to have a down payment available equating to at least 20% to secure your funding with a purchase and renovate lender.

• PURCHASE AND RENOVATION LOANS ARE SHORT-TERM LOANS. Since commercial renovation loans are intended to cover the cost of a specific construction project, terms are usually up to 36-months long. Once the build, renovation, remodel or rehab is complete, the loan’s principal balance becomes due. In most cases borrowers will then need to take out a new mortgage with the newly constructed or renovated property serving as collateral.

CHOOSING A COMMERCIAL CONSTRUCTION LOAN WITH ALPHA FUNDING

Here at our private money lending company Alpha, we offer purchase renovation and commercial renovation loans for a broad range of commercial property types. Whether your project is starting from scratch or you’re picking up part-way through, we can work with you to quickly and easily secure a commercial bridge loan at competitive rates. We’re dedicated to offering our clients flexibility to ensure that our purchase and renovate loans work as effectively as possible for everyone involved and we make sure that you’re kept up to date at every step of the way. To find out more about our commercial construction loans, click here or get in touch now.