Commercial Income Property Financing: Part 1 of 3

Welcome to this first portion of a three-part series about income property. In this first segment we will be discussing financing options for commercial income properties as well as the upside (and downside) of owning this type of property.

If you're interested in getting into the income property business, chances are you'll need financial assistance from your local bank or private lending institution. You'll soon discover that making sense of the many different options available can be confusing if not down right frustrating. If you're new to the income property market you may be unfamiliar with some of the terminology you'll hear. The purpose of this article is to assist the novice in getting a good start in this potentially lucrative industry.

There are many different options available to you depending on the type of income property you're interested in investing in. Most lenders will recognize three separate and distinct types of property, each with it's own financing requirements. These properties include commercial, residential, and industrial income property.

Commercial Income Property

If you plan to invest in a commercial income property, you're probably planning to rent the building to retail businesses for use as office or warehouse space. As a commercial income property owner you can benefit from a perk not usually available to residential or industrial income property owners; you have the option to charge a percentage of your tenants monthly income in addition to a set monthly rent.

This percentage is usually based on the gross monthly sales revenue of your tenant. For example, the rental contract may include a $5000 per month base rent amount plus 5% of the tenant's gross sales for the month. If you're tenant brought in $20,000 of revenue last month, you get an additional $1000 on top of the $5000 base. You may be unfamiliar with this type of arrangement, but it is actually quite common.

If you purchase retail income property with good location in a growing neighborhood, this can be a good way to capitalize on your tenant's growing business without raising rent. Most income property owners charge from 5% to 10% of their tenants' gross monthly sales revenue.

When it comes time to finance the purchase of your commercial income property, a private lender can usually provide better options and interest rates than your bank or credit union. A private lender is in a position to provide the best option for two main reasons; 1) unlike your local bank, private lenders specialize in income properties (as opposed to home loans), and 2) private lenders are more selective in their loan requirements allowing them to provide better terms for those borrowers they accept.

Loan terms (the time the lender gives you fully repay the loan) for commercial income property typically ranges from five to twenty years. Many private lenders will also have a minimum and maximum loan amount which usually goes from $500,000 to $2 million.

Interest rates can run from 5.60% to 7.20%; substantially lower than the most competitive bank. It's also important to know your lender's LTV (loan-to-value) ratio. The LTV is simply the ratio of money borrowed on a property to the property's market value. In other words, you will have to come up with a certain amount money yourself before you will be considered for a loan. Currently, most private lenders offer LTV's of 70% to 75%. If you plan on financing the purchase a $1.5 million office building with a lender offering a 75% LTV, you will need to come up with at least $375,000.

In the next segment, Residential Income Property Financing: Part 2 of 3, we will be discussing how to finance and effectively manage an apartment complex.

Cameron Brown is an internet marketer specializing in investment property. For more information on income property, please visit Security National Capital

More than 40 states signed onto a proposed $25-billion deal with major mortgage servicers over faulty foreclosure practices. New York, Nevada and Delaware joined California in holding out for better terms.

More than 40 states signed onto a proposed $25-billion settlement with major mortgage servicers over faulty foreclosure procedures, but California, New York and other key states were still not among them.

California has until Monday to share in a multi-state deal with banks to obtain mortgage relief and reforms. Atty. Gen. Kamala Harris, who walked away from talks last year, says the door remains open.

With a Monday deadline at hand, California officials have resumed direct talks with the Obama administration about joining a multibillion-dollar, multi-state mortgage settlement with the nation's largest banks, a source said Sunday.

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They don't believe they can sell their property for what it's worth, so they're spending money on making their homes more comfortable.

Do you fit any of these descriptions?

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The White House hopes to help millions of homeowners lower their monthly mortgage bill with a $5 billion to $10 billion plan to set up a streamlined refinancing program for people who are current on their payments.

The Standard & Poor's/Case-Shiller index of 20 large U.S. cities fell 1.3% in November from October as foreclosures continue to drag down the housing market.

Three straight months of home-price declines in the biggest U.S. cities showed that foreclosures remain a significant drag on a housing market that is entering its fifth year of deterioration.

L.A. Clipper Chris Paul may be quick down the court, but he moves pretty fast when it comes to buying multimillion-dollar real estate too.