Many people, realtors, investors, and the public, are wondering what will happen to property prices after the pandemic. 2020 saw an inevitable slump in the property market generally once Covid hit businesses and individuals around the world.
The housing market now is seeing something of a boom as far as prices are concerned due to a supply and demand problem. More people are interested in buying homes than are actually available, at least in some regions. Commercial property is also looking buoyant as 2021 progresses and could represent a good investment now.
When you are considering a move into the commercial property market, or are already involved in investing, you need to weigh up your lending options. Today’s loan options are far greater than those offered in the past and some may be easier to obtain and more useful than others.
What condition is the commercial property market in today?
When looking towards cities such as New York and London, you will see that many offices are now being turned into homes as the need for workspace is diminishing. One of the causes of why this is happening in the pandemic. The virus has changed many things including the way people work now.
The lockdowns of 2020 and now, 2021, meant that many people were asked to work remotely from home. Other individuals who found themselves unemployed also looked for ways to work online. The effect of this is that less office space is now needed in many cities in the UK, the USA, and in other countries.
However, there are signs that some locations with traditionally high levels of office space are returning to normal. There are also many other commercial properties available due to the number of businesses that failed during the last eighteen months.
Is commercial property investment a good idea?
Before you get involved in raising finances, taking out property loans, or investing in the market, you should ask yourself if now is the right time.
There are many reasons to get involved with the commercial property market. Purchasing property, in general, is often a good way to invest money and can lead to high returns in a strong market.
Options for investing could include the following:
- Apartment buildings
- Office buildings
- Land development
- Strip malls or centres
- Restaurants and bars
- Sporting arenas
- Storage facilities
- Medical offices
In fact, any property or land that is intended to be able to make a profit could be considered a commercial property. Even if offices will not be used for their intended purpose, it may still make sense to join the bandwagon and convert them into homes for a profit. Empty retail units may be available at a good price after so many bankruptcies, and land is going begging in countries hard hit by the pandemic.
The main reason to invest in commercial property is to make a profit.
How much could you make on a commercial property investment?
When it comes to profit predictions it would be hard to put any type of figure on it as there are so many options for investment. An office building could potentially remain empty for some time and an apartment building may not attract buyers. Alternatively, you might discover you have to fight off potential purchasers.
When it comes to rental yields on commercial property it is a little clearer. According to some experts including Statista, rental yields on commercial properties tend to lie between 5% and 10% depending on the type of property. Retail figures very highly in the best options for UK investment including the high street, shopping malls, and retail warehouses.
Residential property, by contrast, usually provides a yield of between 1% and 3%, making commercial property far more attractive.
What are the different types of loans for commercial property investment?
Now that you are committed to the idea of commercial property investment it comes down to finding the best options. There are many types of lending options for a potential investor and they are all useful in different circumstances.
Some types of commercial property loans:
- SBA or small business administration loan
- CDC or certified development company loan
- Traditional loan or commercial mortgage
- Commercial bridge loan
- Hard money loan
Small business administration and certified development company loans
In America, the US Small Business Administration offers a variety of loans for commercial investors. The organisation will lend up to $5 million and can process loan applications quickly.
The purpose of these particular loans is to help stimulate the economy, growth of companies, and help provide employment. They can be used for the purchasing and development of land, construction of new facilities, and for buying existing commercial property.
Traditional loans or mortgages
In Britain, you might search for the best UK commercial mortgages when you want a standard way to raise finances. The big banks such as Barclays, Nationwide, TSB, Lloyds, ICICI, Santander, and Halifax, are all involved in commercial mortgages as well as residential options.
A traditional loan may be paid back over a longer period than some other options, perhaps up to 20 years. Just like residential home loans, you would be expected to provide a substantial deposit from 15% to perhaps 35%, of the total LTV ratio.
The perks of this type of loan are the longer payment period and the lower interest rate. The disadvantage of this type of lending option is there is less likelihood of being approved. Banks are less likely to approve large loans than they were in the past.
Commercial bridge loan
A bridging loan for a commercial property is much the same as when it is used for a residential purchase. Bridging loans are providing to help fill the gap between selling one property and acquiring another.
For instance, you own a building that is up for sale but there is a delay in completion. However, you are already far down the line in the purchase of another commercial property. A bridging loan will provide a short-term finance option for your new purchase while you are waiting on the sale of your other property.
They tend to be short-term options and come with substantial interest rates and fees. A borrower should pay the loan back quickly or look to switch to another financing option.
Hard money loans
A commercial hard money loan is another short-term option that can help get you onto the commercial property ladder. These companies are licensed to lend to investors and the loan can be used to purchase any manner of commercial property or for individuals who want to flip houses.
They are intended to be used by owner, non-occupant, investors and typically pay out up to 75% of the ARV of the asset. They may need to be paid back within 12 months but often do not have early repayment penalties. The disadvantage in using one of these loans is the high-interest rate but many accept this as they are easy to arrange in a matter of days and allow for quick and easy property purchases.
The commercial property market could be a good investment, even for a beginner, if the research is done properly. Conventional loans provide low-interest rates and longer terms but for someone looking to get involved in the market easily, a hard money loan may be the best option.
As the pandemic continues, it will be interesting to see how the property markets pan out, but for now, bricks and mortar are still looking like a solid investment.