Conducting research online before investing in commercial real estate is a smart idea. But blindly following any piece of advice you find? That’s a different story.
Unfortunately, plenty of commercial real estate myths are still permeating investment circles. While these notions are demonstrably false, they can still prevent prospective investors from taking the first step to building their portfolio.
The best way to combat these myths is to point them out and replace them with clear explanations and more accurate insight.
Here are a few commercial real estate myths that you should keep in mind when you make your decision to invest.
1. Commercial Real Estate Investing is Too Big a Risk
Every investment brings with it a degree of risk, and commercial real estate is no different. That being said, commercial real estate investing does have certain advantages over other types of investment vehicles. Commercial real estate isn't subject to the same type of volatility one can experience when investing in the stock market,
You can also lessen the risk of investing in commercial real estate by purchasing a less risky property. In general, fully-tenanted multifamily properties generate steady cash flow. And it can be easier to manage a building with 5 units under one roof instead of 5 separate 1-unit properties.
2. You Need a Perfect Credit Score to Invest
Prospective borrowers with excellent credit will generally have an easier time getting approved for a loan, but competitively-priced options exist for those with lower scores as well.
It is common for lenders to set 650 as their minimum credit score for commercial mortgages. If your credit score is higher than that, you should be able to find financing options that meet your specific set of needs.
3. It’s Cheaper to Rent
Upfront capital expenses are obviously lower when renting commercial real estate as opposed to buying, but that doesn’t automatically mean it’s cheaper to rent.
That’s because owning a property gives you the ability to build equity. Ownership also creates tax benefits that you can take advantage of each year.
Ultimately, the decision to buy or rent will come down to your short and long-term financial goals.
4. The Loan Transaction Process Is Lengthy and Complex
While the commercial loan transaction process does take longer than that of residential loans, it does not have to be as complicated and drawn out as you may have heard.
In most cases, lengthy commercial loan transactions occur due to poor communication or unforeseen difficulties regarding the borrower’s finances, credit, or property.
Strong lenders work hard to identify those types of issues early on so that delays do not occur in the underwriting stage of the process. And strong lenders also make communication a priority so that borrowers do not experience any surprises throughout the transaction.
If these steps are taken, commercial loan transactions can be completed in as little as 35-45 days.
If you are trying to separate myth from fact while attempting to secure a commercial loan, simply reach out to our experts here. They will be happy to help you take the next step in accomplishing your investment goals.