Expert Tips for Getting High Leverage Business Financing!

The investor appeal of purchasing real estate often overlooks the primary reason for the purchase… to make money! Too many real estate investors often confuse buying real estate with making money. In many cases, they are not the same. The general strategy of buying low and selling high is only one part of making money in real estate. Money in the long run is earned by the smart investor who understands the power of leveraged financing.

Think about this for a moment, most real estate gurus promote courses on finding distressed opportunities, negotiating owner financing, and the various reasons why you should buy real estate. How often do you see articles or courses promoting effective leveraged financing?

Let’s start with the purpose and differences between residential and commercial real estate zoning. Residential zoning requires that all loans be secured based on the property’s appraisal or purchase value. It also requires the homeowner to qualify within the lender’s debt-to-income ratios, in addition to personally guaranteeing the loan. The hard money purchase option has some short term benefits, however it is not intended for long term purposes. The owner investor type requires stable and affordable loan terms.

The general intent of residential zoning is to personally reside on the property and here’s why!

1) R zoning limits the use of the property.
2) Residential non-owner-occupied loans pay an interest rate penalty.
3) Non-owner occupied properties do not qualify for Homestead exemptions and are taxed at a higher rate.
4) Your personal guarantee limits your property purchases to your personal income and debt ratio.
5) Today’s residential lenders always lend at cost (LTC) or contract to purchase and will require a significant down payment to reduce lender risk.

Commercial zoning by its very definition means properties used for commercial purposes. Properties that are used to generate business sales or profits. There are multiple types of commercial zoning codes, but they all share the primary function for commercial use. Commercial tenants along with the leases they sign can be leveraged to qualify for income-based commercial financing. Herein lies the main benefit of business investing.

Characteristics and benefits of commercial financing

1) The loan is based on property income, not your personal income.
2) The loan does not appear on your credit report and will not limit the number of property purchases.
3) Loans can be structured to be non-recourse and may not require a personal guarantee.
4) Cash Flow Commercial properties also qualify for Loan to Valve (LTV) financing.

LTV Financing is not tied to the purchase price or the contract price. It is based solely on property income or cash flow. This type of financing benefits the savvy business investor who knows how to buy the property at the right price. It becomes possible and very likely that the acquisition of the property will require little or no down payment.

Now ask yourself if LTV financing really exists, why don’t marketing gurus have this information? It’s really a simple answer! Most real estate investors are excited to talk about buying real estate, but spend little or no effort researching or structuring the financing. In short, it is considered boring or too complicated.

Real estate investors, who value financing just as much as the actual acquisition of real estate, will be the BIG winners in this market!