There’s no other investment quite like real estate, but making a return in the commercial property market requires more hands-on research than many newcomers think. On top of knowing the market for that property type in the area you’re shopping and the cost of readying it to give you a return, you also have to decide between short and long-term investment strategies, financing options, and many other factors that influence the profitability of each move. Going in prepared is vital, especially where your financing options are concerned.

Commercial Real Estate Loan Types

There are a variety of loan options to choose from. If you’re looking for an amortizing instrument that resembles a consumer mortgage or asset loan, there are traditional business loans available through most banking institutions. There are also a few programs you can access to get an even better deal, if you know where to look.

• SBA loans for commercial properties
• CMBS loans for industrial, retail, and commercial lots
• Stated income loans based on earnings from other properties

For those looking to turn properties and put them back on the market, there are a variety of products to choose from that close quickly and emphasize fast turn-around times for property resale. They’re also good for rehabilitation projects, to make a property ready for financing via a traditional long-term commercial real estate loan.

• Hard money loans
• Interest-only bridge loans
• Fix and flip loans that include funds for rehabilitation and renovation

As you probably noticed, the different loan types are clearly built for different strategies in the marketplace. That’s why it’s important to understand your deal before you select a financial solution and make a bid.

Interest Rates and Loan Costs

Long-term, amortizing loans like the SBA’s 504 program or CMBS loans tend to be the most cost-effective on a month to month basis and the lowest interest, but their long terms and occasional prepayment restrictions can pose problems if you’re not planning on holding or occupying the property. On the other hand, short-term solutions like bridge loans are only cost effective when you sell and pay them off with the balance or refinance them into a long-term loan ahead of their large final payments. Understanding the limits of your loan’s capabilities and the point at which the expenses outweigh the benefits is a key part of planning your commercial real estate deals to work with your financing.

If you’re not sure how a transaction will play out, it’s probably time for more research and planning, not a time for guesswork. Eventually, you’ll either find the right path to the investment or you’ll realize that your best choice is to look for another property. When you understand the numbers and your market, it’s easy to make those calls.