Commercial real estate is usually more expensive than a single house, commercial real estate isn’t cheap and not everyone has $200,000 laying around for a down payment. You’re in the right place if you want to know how to raise money for a down payment; there are tons and tons of private investors, crowd-funding, peer-to-peer lending, and wholesale commercial lenders that are willing to put money to buy the commercial property you’re interested in.
The professionals at the Local Records Office created four different ways to raise money for a commercial real estate down payment.
1. Raise Capital from Private Investors
Raising capital from private investors is the most common way real estate investors buy large commercial property. Most of the time it isn’t one individual that owns a commercial building it’s a group of individuals that came together to purchase it. The goal of raising capital is to be the main person in charge of the commercial building, the main person also known as the leader makes the major decisions and gets the biggest income but also has to know what type of deals to make.
2. How do You Structure a Deal
The easiest way to look at it is an investor puts money down; the investor has a lead role with you to make changes in the building or to sell it. The best way to go at it is to create an LLC and to write down that your role is in the project and what the investor’s role is within the LLC. This will be the most common way investors make deals when putting down money.
Another way is to have passive investors that are only there to invest but don’t want any saying on what goes in the changes of the commercial real estate. You will become a sponsor and the investor becomes syndication. When working with syndication deals you will need a syndication lawyer that specializes in deals like these.
3. How Do I Know if My Deal is Good Enough to Attract Investors?
Priced market – The first thing to do to attract investors is to price the commercial property at the right price on the market; you don’t want to overprice the investors.
Income upside – There needs to be room for rent to increase over time to keep making a profit. When the net property income goes up your property value goes up too. You need to bring this up to investors to let them know the property value will be rising over time.
Excellent Cash-to-Cash Return – Cash-to-cash return refers to return value over the years. If a deal goes well the investor(s) can make up to 20% return in 5-years that almost the entire down payment.
Excellent market – The way you know you’re in an excellent market is when you know the market trends; population trends and what businesses are moving in and what businesses are moving out.
Exit strategy – This step is crucial because you need to know what strategy you will have when closing the deal. Also, the percentage the investor is going to get at the end. The exit strategy needs to be realistic and conservative, if it isn’t the deal is too risky.
4. Using Creative Financing
Using creative financing is the best way to create income using commercial real estate because it gives you endless possibilities. One of the best ways to use creative financing is through Individual Retirement Accounts also known as IRA. IRA lets you work with other IRA holders to construct a creative financing plan to purchase commercial real estate.