Are you thinking about investing in a mixed use property? This type of property includes both a commercial space and a residential space. An example would be a building that has office spaces on the main floor and apartments on the top floors. When done right, mixed use buildings can be a great investment opportunity that allows you to collect rent from business owners and tenants.
Of course, most people can’t afford to shell out the money to invest in a mixed use property, so they must rely on financing. Because of all the rules and regulations that traditional banks have to follow, real estate investors tend to rely on private lenders instead.
Let’s learn more the pros and cons to mixed use loans and how you can make one work for you.
Pros of Mixed Use Lending
Versatile. Mixed use loans may be used to purchase, refinance or rehab a commercial property. This allows you to purchase the building and make the necessary improvements before renting out the space.
Makes you competitive. Investors who have been in the game for a long time may have all cash to purchase buildings, which is attractive for sellers. However, you can compete with these offers by applying for mixed use property financing. These loans are funded quickly, sometimes within the week.
Placeholder before getting a bank loan. If you want to invest in a building that needs some work, a mixed use loan will allow you to make the repairs. You can then refinance and move to a permanent loan.
Fewer requirements. If you don’t have a good credit score or a stable income, you probably won’t meet the requirements for a bank loan. Mixed use loans are funded by private investors, so the requirement are more lenient.
Cons of Mixed Use Lending
High interest rates. As with any hard money, mixed use loans have higher-than-average interest rates. This is not because they are predatory loans but rather because investors need protection from higher risk investments.
Down payment. Mixed use loans won’t cover your entire purchase. You’ll still need to put some money down, and this could end up being quite a bit for commercial properties. Average down payments are between 20% and 30%.
Quick payback periods. Another thing to be aware of is that mixed use loans are short term loans. You’ll have to pay off the loan relatively quickly, usually within 6-12 months. If you can’t pay it back in this time period, you might find it difficult to be considered for hard money in the future.
Contact the Investors from First Funding Loans
If you’re planning on investing in a mixed use property, hard money is one of the best ways to finance your purchase. As with anything, there are pros and cons to be aware of, so you’ll want to do your research and ask the right questions. The good news is that once the property is fixed up and rented out, you’ll be earning passive income. To learn more about applying for a mixed use loan, contact First Funding Loans today.