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Why it is Important to Understand the Current Market Before Applying for a Commercial Real Estate Lo
Author David Schneider | Nov 16,2007
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Applying for a commercial real estate loan is an important step in building your own business. It’s important, though, to understand the current market before applying for a commercial real estate loan. Most beginning companies don’t have enough money to purchase property outright. This makes using commercial real estate loan lenders necessary. By understanding the current market, you can decide when the best time to begin your business is and how to find the best commercial real estate loan for your business.
How Interest Rates Affect Your Commercial Real Estate Loan
When you’re thinking about purchasing a piece of commercial real estate, you need to consider many of the same things that you consider when you’re buying a house. One of the first questions you should ask a lender is about the interest rates that you will be charged for your loan. One percentage point can make a big difference in the profitability of your business. For instance, say you are looking to borrow $500,000 to purchase your commercial real estate. If you’re offered a 30-year loan with 10 percent interest, then you’ll be paying $50,000 in interest payments. Now let’s say you can find a loan with a nine percent interest rate, just one point lower than the first. With the nine percent interest rate loan, you will be paying $45,000. With just a one point difference, you’ve already saved $5,000.
Changes in Interest Rates
Interest rates change over time. Just because you can find a commercial real estate loan with an eight percent interest rate this year, doesn’t mean that you’ll be able to find one with an interest rate under nine percent next year. The interest rates can even change more quickly than year-to-year. Changes can happen over night, so you’ll need to be on your toes if you want to find the best commercial real estate loan. You can often make educated guesses about what interest rates will be like based on the way the market changes. By doing some research into current interest rates and the projected interest rates in the near future, you might be able to save your business thousands of dollars just by waiting a couple months to open.
Change in Real Estate Prices
Real estate prices can change almost as quickly as interest rates. An inexpensive property can become highly sought after if development in the area is going well. Buying commercial real estate that you expect to become more expensive can be a gamble. If development in the area doesn’t work out, then you might actually end up losing money. If the area becomes more popular and more businesses begin opening, though, you can find that the property you’ve purchased with your commercial real estate loan has actually increased in value.
Understanding the current market is important when you’re buying commercial real estate. Understanding the current trends in interest rates and property values can save you a lot of money. By investing the money that you save into your business, it’s possible that you will be able to expand your business and increase profits. |
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