1. Require a higher down payment, typically 20%.
2. Have shorter terms, typically 5-20 years with a large chunk paid at the end.
3. Have higher interest rates.
So you typically have higher carrying costs(monthly payment) associated with a commercial loan, there’s more risk because you have a balloon payment at the end of the term – or you have to refinance, and you cannot refinance out if the rates go down without a prepayment penalty typically.
Qualifying for a commercial loan is different…it’s based on income potential of the property. While a residential loan is based on your gross income and debt.
$175,000 for this 3-bedroom detached condo. Backs up to common area, large rooms, even a 2-car garage! Condo fees include exterior maintenance, siding, roof, even plowing the driveway! Great property for investor. This is a short-sale, being sold as-is.
During the decline of the last real estate cycle I wrote a post about how different towns function in the cycle. I.E. top towns are the big indicators when the market will start to stabilize after a decline: Top Towns in a Declining Market
Right now we are in a completely different market, but the point remains the same. Top towns LEAD the UP-cycle, they are a good indicator when prices start to rise. So it’s “First Out” of a declining real estate market. There are still New Hampshire towns struggling, but most are stable, if not slightly increasing.
Every market has submarkets, so when you watch the news about double digit declines- it’s all the markets combined. A cookie-cutter subdivision with a price point of $350,000 and up may show a larger decline than an entry-level subdivision. A contemporary home on a lake may show no decline. Bank-owned properties would most likely show the largest decline. All this within the same timeframe/market. They are examples of submarkets…move-up (mid level), entry level, standard cookie cutter, vacation, lake front, bank-owned, or unique style properties. So depending on what submarkets posted the most sales it would skew the overall market data. Knowing this you can now postulate that these huge declines are due, in part, from most sales being bank-owned or entry-level in the past 6 months so it is a false representation of the market.
Something I noticed in the recent real estate debacle was that more “desirable” areas fared better overall. They were the last to start declining and they were the first market areas to stabilize. This may not be news to everybody but I thought it was rather interesting to point out.