Before taking out Arizona commercial real estate loans, you need to ask yourself a few questions. “Will income from the property pay my mortgage on a monthly basis?” and “how do I intend to generate a return? With quick profits from resale or do I want to earn a steady income over the long haul?”
Let’s consider the first question, “Will income from the property pay my mortgage on a monthly basis?” Hopefully, the answer is yes, but you aren’t buying a property to make mortgage payments. In the end, you want to make money.
• What condition is the property in? When it comes to making a quick turnaround, you want to boost the property’s value as soon as possible while at the same time spending as little money as possible. Scout locations that require minimal work. Better yet, find properties where you can boost cash flow, and therefore raise the resale value without spending any money at all. If a property does need some work, lower your initial offer to account for these costs. For example, if a location needs $10,000 in repairs, you should reduce your initial offer by $20,000. That way, you earn a dollar in profit for every $.50 you spend bringing the property up to code.
• How occupied is the property? Properties with less than 85% occupancy don’t sell. A half-occupied apartment complex could take many months to reach that 85% benchmark. Securing new tenants will hinder resale and prevent you from achieving a rapid return on your investment. Save yourself some time and purchase properties that are as close to full occupancy as possible. Otherwise, have a clear plan in place to bring in new tenants before you invest.
• What are the tenants like? If a prospective property is full of deadbeats who don’t pay rent on time, it is probably not worth your time. A wave of evictions coupled with the time it takes to find new tenants means you might not be able to keep pace with your monthly loan payments. Ask to look at the rent rolls before investing in a property, which will tell you whether the current tenants are paying rent on time.
• What is the neighborhood like? Earning an income from a property over the long haul requires two things: gradual rent increases and a steady uptick in property values. An area that is on the decline indicates declining rents, occupancy rates and declining property values. Before investing for the long term, get a sense of the neighborhood, or better yet, get some real data to see if property values in the area are on the up and up.
In short, before taking out a loan to invest in commercial property ask yourself a few basic questions:
1. Will income from the property at least initially pay for my loan?
2. How do you intend to earn a return?
3. And consider any factors that could prevent you from earning a return.
Answering these questions for yourself will give you a sense of whether taking out a loan on an investment property is worth your while.
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis Dahlberg Broker/RI/CEO
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.