Using Private Mortgages To Acquire Commercial Property
“A Private Mortgage May Be The Best Solution For Financing A Commercial Property Purchase”
As I’ve previously written, a private mortgage can actually be a primary lending option versus a loan of last resort for those with bad credit.
One of the situations where this can be the case is with the acquisition or purchase of commercial property. Depending on the property and related mortgage lender requirements, a commercial property loan from a bank or institutional lender can take 60 to 90 days to close. And while the seller may be more than accommodating with allowing a subject to financing clause in your purchase and sale offer, it can’t be assumed that the seller will also be prepared to have to wait two or three months for the condition to be waved and the sale finalized.
One alternative is to complete the purchase with a private mortgage. While the cost of financing is going to likely be higher and there will be more closing costs to get this type of commercial mortgage in place, the benefit is that the time it takes to get a commitment and get the deal funded is more likely to work with the time the seller is prepared to give you to arrange financing in the first place.
Then, once the property has been acquired, you should immediately start the process for looking for a long term institutional financing solution to pay out the private mortgage lender. Most private mortgages are for a one year term, so that should give you plenty of time to seek out the best available bank or institutional deal. It also affords you time to make property improvements that can add or strengthen the fair market value of the property, further strengthening your case for a bank commercial mortgage. If there is a business associated with the real estate, the added time can allow you to come and improve the operating results if these results are expected to cover all or part of the mortgage debt servicing.
And while 12 months can seem like a long way away, don’t put off looking for your long term commercial mortgage solution too long as you can end up running out of time a second time. With some private lenders, you may even be able to have the private mortgage open for prepayment after a certain period of time, say at least 6 months, giving you the opportunity to switch over to cheaper financing as soon as possible.
About the Author Joe Walsh
I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel