When you start investing in commercial real estate, it can be tough to know which loans you should rely on. The key is understanding that each type of real estate loan is geared toward a different investment model. Before taking out a loan to acquire a new property, it’s important you step back and ask yourself what your exit plan is with this investment, what kind of timeline it is on, and how much of your own capital you are planning to put into the purchase. Knowing those three things makes it a lot easier to choose.

Loans for Long-Term Investments

If you are buying facilities for your business or a long-term income property investment like rental homes or apartment buildings, then it’s a good idea to look into loans that take a long view as well. They tend to require sizable down payments, but the tradeoff is a low monthly payment and low interest, making it easy to recoup that investment capital and reach a return relatively quickly for an expensive long-term holding. Traditional commercial real estate mortgages are the most flexible for the purpose, but you might also want to look into SBA loans if you are buying facilities for a company.

Loans for Short-Term Acquisitions or Renovations

If you are buying a property to flip, then chances are you don’t want a loan with a decade-plus term and high down payment requirements. Not only is it a lot more loan than you need in terms of repayment time, but it’s also going to take a long time to get approval because long-term loans require a lot of vetting to assess the risk. Short-term loans are a little easier to get, especially if you are looking for something simple like a bridge loan.

Bridge loans are great for acquiring commercial real estate quickly because they don’t take long to approve and the payments are usually interest-only, with a principal repayment due in full at the end of the loan. This gives you a chance to make repairs and remarket the property, but it can also be used to close on a fixer-upper so you can renovate it prior to refinancing into a commercial mortgage and using it as an income property.

Additional Commercial Property Loans to Consider

If you already have a property with equity you could tap for your purchase, it is worth considering that as an option instead of securing the loan with a new asset. Stated income loans and asset capital loans are both available for the purpose, and it is usually a lower risk choice to finance a stabilized investment with predictable returns over a new venture. Keep that in mind as your portfolio grows and you acquire more commercial real estate.