Creative Financing for Commercial Real Estate Deals

At HGC, we know all too well that buying commercial property can be challenging. The properties can be very expensive, and you’ll usually need a down payment of at least 35%. Fortunately, there are many opportunities to fund commercial real estate creatively. Always remember that commercial real estate owners are business people. Everything is negotiable.

You might be surprised by what a seller is willing to do in order to make a deal happen! Be honest with the seller and the broker. Brokers want deals to work, too. After all, brokers don’t get paid until closing.

Be creative and get your deals financed:

1. Seller financing. While you won’t see a lot of seller financing in conventional residential real estate deals, seller financing is quite common in commercial real estate deals.

• In exchange for seller financing, you may have to pay a higher price. However, seller financing can be less expensive than taking on an equity partner.

• The greater the equity in the property, the more likely the seller will be willing to consider such a deal.

2. Transactional funding. If you’ve found a property and already have a buyer in place, you can do a double closing. Unfortunately, the days of your buyer funding both transactions are all but over. It can be a frustrating situation, but there is a solution. There are transactional lenders that make very short-term loans, often for only 24 hours.

• Title companies are very familiar with the process, and it can be a great way to flip a property quickly without having to qualify for financing.

3. Equity Trading.  If you already have a property you’re willing to throw into the deal, consider an equity trade. This is also present in the residential market and commonly referred to as “home swapping.” You can do the same in the commercial world. Use the equity in your current properties to help pay for a new property.
4. Find a partner that can make the financing happen. Find a partner with the financial resources to fund the deal. In most cases, you’ll provide a share of the profits in exchange. The possibilities are endless. Be creative.
5. Private loans. Can you borrow the money from a friend or family member? Maybe the rich lady down the street is looking for a new investment opportunity. Instead of paying a share of the profits, you’ll make payments to the person providing the loan.
6. Lease options. Lease the property and have a portion of your lease payment go toward the purchase price. You can have complete control over the property and use the tenants to pay your landlord. A lease option also buys you time to secure financing.
7. Stock loan. It’s possible to borrow up to 80% of the value of your stocks, bonds, and mutual funds. This is one of the easiest loans to obtain. There are no credit checks or income verification. The lender already has all the collateral they need to feel safe.
8. Shared appreciation mortgage. The seller agrees to provide financing at very favorable terms and share in the appreciation when the property is later sold. The usual appreciation split is 50-50.

Financing issues are common in commercial real estate. But the field also provides endless opportunities for creative financing. It’s possible to find financing for any good deal.

Making the financing work can be as challenging as locating a great deal. Make contact with other investors and discuss the options and customs in your local market. There’s almost always a way. If you’re scrambling to find financing for something, and you want to talk about ideas, book some time with us today! We love to help folks achieve their commercial real estate dreams.