Commercial Property – 7 Ways to Buy

Commercial property ventures are not included in all the new homeowner protection laws and regulations about financing that are in the residential market. The financial area of real estate seems to be in chaos.

Most of the massive changes do not include commercial loans. The Uniform Commercial Code (UCC) controls commercial property loan and other transactions.

The tight money market does affect the commercial investor in the same way. Sometime there are very good deals that come on the market because of the tight money. If you do not have other ways to buy the good deals then you are in the same situation as everyone else.

In a down economy and tight money market it is up to the investor to find ways to capitalize on what is available. In the tight money market the alternate lenders and investors come out of the wood and do well.

We will explore 7 ways to finance your commercial real estate venture.

1. Management Syndication: You could offer a private money lender a guaranteed net from the rental property with management in place for 3-5 years, with an option to buy the property.

2. Like Kind Exchange: Section 1031 of the Internal Revenue Code deals with like kind exchanges, either personal or real property, excluding personal use property and inventory held for sale in the normal course of business. With this strategy, you will need to have another commercial property to sell (and not pay taxes on at that time) then purchase another property. This is a very good strategy when you are trying to upgrade to a more suitable or more profitable property.

3. Trading: You may have some asset or expertise that would be valuable to the seller of a property. The seller may be willing to exchange the down payment or make better terms with you for some exchange. There is almost no limit to the different ways you can trade (including using regular stocks in your real estate trade). Example; my friend wanted a property on the beach but could not afford anything but he kept looking for something that might work. He found an owner who had a large family in Japan. The owner wanted to keep the property to pass down to his family. The owner was willing to give my friend a 30 year lease with the first right to buy the property. Although my friend did not own the property, he has total control of the property for the next 30 years. He found what he wanted, (to work on the beach) and the owner got a permanent manager partner arrangement.

4. Use your IRA money to buy the property: You could have a sizable amount of money in your IRA account. You may not have enough money for your new venture and your IRA is not getting much income/interest. This may be a good option for you but you should not do anything without consulting your real estate attorney. The government puts a lot of restrictions on all transactions that involve retirement accounts.

5. Syndicate the transaction: One way to syndicate the transaction is to find a really good deal and get the purchase contract signed. Then you find other cash investors to go into the deal with you for a % of ownership in the property or a % of the profits without ownership while you run the business. This is different than all investors being partners.

6. One payment a year financing: My father often did this type of financing. He bought big tracks of land for framing or development. With one payment a year financing he was able to harvest a crop or build houses enough to pay the once a year payment. He accumulated tracks of land and other properties all over the county using this strategy.

7. Option the property with a management agreement: Not to be confused with lease-option. With this strategy you would take control and manage the property (like an office building). At some point you may have increased the occupancy and be able to finance the property. There are several advantages to this strategy. The first is you will find out what it takes to improve such a property. The second is you do not have to invest all your money up front.

In this time of tight money and low market you need to be creative when you are buying or selling commercial real estate property. It is good to look at a number of options before you purchase. Which option would be best for your situation?

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