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Going Commercial

William Shakespeare said,

When we mean to build,

We first survey the plot, then draw the model,

And when we see the figure of the house,

Then must we rate the cost of erection,

Which if we find outweighs ability,

What do we then but draw anew the model

In fewer offices, or at least desist

To build at all? -- William Shakespeare

Moving from investing in small residential complexes to investing in complex multi-unit or mixed-use commercial complexes is the equivalent of moving from Junior High straight into College. Though today's market place allows the investor the same types of financing for their commercial properties as they normally would for residential properties, commercial investments require a whole new level of professional management. And if you're a full-time employee, do you really have the time to manage a 20-unit commercial complex?

I'm not advising against your investment in that 20-unit commercial but I am asking you to take a plan of action into consideration; a Business Plan so-to-speak. How will you finance it? How will you manage it? If your investment goes sour, what's your exit strategy?

How Will You Own It?

If you work with your own Financial Advisor & CPA, I'm sure that you've discussed ownership of your investment properties through some form of corporate or partnership structure.

WHY?

Because as a high net-worth individual, you want to insulate your personal wealth from any lawsuits or any other personal liability issues that may arise against you.

Here are some common types of ownership that you might consider:

Sole Proprietorship
Partnership
Limited Partnership
Corporation
Limited Liability Company

Follow the Money:

You always want to finance as much as possible on your property purchase. If of course you have enough for a down payment that means a lower interest rate. But don't place more of a down payment than is necessary. Keeping liquid cash-flow and having it available is always important. In this case your purchase should cash-flow itself but having additional reserves for improvements/repairs never hurts.

Unlike Residential Financing, you'll find that Commercial Financing requires larger down payments, loan products carry shorter terms, and interest rates are generally higher. But don't fret, commercial financing is generally speaking a little more lenient than residential financing. There are still very competitive loan programs available in the market place. It's simply a matter of determining what your immediate needs are and locating appropriate financing terms.

Remember: Provide your lender/loan officer with as much information as you can! Give them a "mini business plan." The more information we have, the better we can structure your deal and locate an appropriate financing package.