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How to Make Money in Commercial Real Estate

When it comes to investing wealth, real estate has proven itself time and time again to be a reliable way to make money. With $32.6 trillion up for grabs globally, many are turning to commercial real estate to bolster their investment portfolios. If you want to try your hand in commercial real estate, here are a few ways to enter the market.

Become a Broker

One of the ways to make money in commercial real estate is to become a broker and help developers and investors find the perfect properties to suit their needs. While this bears some similarity to residential realtors, it is significantly more involved.

In residential real estate, clients are looking for one thing: a place to live. A commercial real estate broker’s clients will be looking for unique elements that suit their business or investment needs, including:

  • Parking
  • Proximity to public transportation
  • Highway access for commuters
  • Storage space
  • Foot traffic (for retail spaces)
  • Space to grow
  • And more

Once you find the right property, commercial mortgage brokers will also need to help developers or investors identify and secure funding for their projects by working with different financial entities. Like residential real estate loans, commercial real estate loans come in many shapes and sizes. You’ll need to learn about all the different ways to secure funding and help clients navigate the commercial real estate financing process.

It might sound like a lot to juggle, but if you can do it, you can easily make over $100,000 per year—with some brokers reaching seven figures annually! Of course, commercial real estate brokers work on commission, so don’t expect to make much in your first few years as you build your reputation.

Invest in Commercial Real Estate

If the commission life isn’t for you, commercial real estate investment is another great way to earn money. Two of the most popular ways to invest in commercial real estate are::

  1. Buy a property, make improvements, and sell for a profit 
  2. Buy a property and rent it to tenants 

Real estate investing has the potential to generate a strong stream of income if you’re able to capitalize on market trends. Of course, there’s also plenty of risk involved, so make sure you do your research before applying for a loan and purchasing your first commercial property.

Work as a Commercial Real Estate Developer

Becoming a commercial real estate developer might take the most time and capital, but it has the potential to generate the most return on your investment.

Commercial real estate development is like starting from the ground up—quite literally. A developer buys a plot of land, builds a commercial property, and either sells it or rents it to tenants for income. Because you’re not buying an existing property, you can make it into whatever you need it to be to suit local business trends. Plus, brand-new buildings can typically be rented out for more money!

Since you are starting from scratch, commercial real estate development takes a bit more effort (and capital) to get started. Luckily, there are plenty of financial institutions that offer loan programs for each phase of the development process:

  • Construction loans
  • Land development loans
  • Bridge loans
  • Rehab or redevelopment loans

On average, commercial real estate developers earn around $80,000 annually, but that number can increase drastically depending on the real estate market and the choices you make. Many successful commercial real estate developers earn annual salaries in the millions of dollars.

Start Your Commercial Real Estate Journey

Are you ready to start your exciting journey in the commercial real estate market? No matter which path you take, it’s important to have enough capital to fund your business.

At Broadmark Realty Capital, we specialize in construction loans designed to suit the needs of commercial real estate investors and developers. With flexible loan terms and ample experience, we can get you the funds you need quickly, so you can capitalize on the next opportunity. Contact us and get your next commercial real estate project off the ground in no time.

The Multiple Stages of Construction Financing

The Multiple Stages of Construction Financing

When you need to obtain financing for your real estate investment project, there are many factors to consider, whether you’re building a single-family home, acquiring raw land, or developing a multifamily property. In fact, each stage of the construction process can be financed separately, with each part of the process requiring capital to add value to the project. Regardless of whether you’re looking to sell a project for a profit or transition it into the next phase of its development, be sure to work with an experienced lender that is well-versed in the property type you’re working with.

In this article, we’ll explain the different stages of real estate development and how appropriate financing can add significant value to each one. Identifying these details upfront is a critical part of a real estate project that will be successful, regardless of the stage in which you choose to get involved.

stages of construction financing

Raw Land Loans

Purchasing raw land may be right for you if you want your project to be fully customized and you’re not concerned about taking some extra development time. You may want to purchase an infill lot in a dense, urban location, or land in a suburban area that can be platted into individual lots to build multiple structures. A land loan will allow you to purchase this piece of land on which to build your development.

A key factor to consider when examining the risks of purchasing land is the marketability of the land and how it will affect any future projects that will be built upon it. Some lenders consider themselves “land banks,” and specialize in funding the purchase of raw land before the profitability of a project can truly be determined, adding to the risk associated with the loan.

Other lenders participate in raw land acquisition with certain requirements in place. Typically, this includes cross-collateralization of other properties and evidence of feasibility work. Generally, a path to entitlement and the ability for the lender to finance future stages of development are crucial prerequisites for these types of loans from “non-land bank” lenders.

Horizontal Development Loans

Horizontal development refers to obtaining entitlements and adding infrastructure to prepare a piece of land for vertical construction. For example, this includes finalizing the permitting on the land, installing utilities, or laying a concrete pad. Generally speaking, a horizontal development loan will include a combination of these elements.

In many cases, borrowers may not have access to the capital that is required to move a project into its next phase (vertical construction). Horizontal development loans can help bridge this gap. At this stage, if you have an existing land loan that you’re looking to refinance, loans that are over-leveraged make it difficult to do so without an additional capital commitment. Seek a lender that underwrites for the vertical construction phase in tandem with the horizontal phase and does not rely too heavily on leverage. This ensures there is enough equity for vertical construction so there is no need to raise additional capital. Additionally, this will allow you to refinance with another lender if the original lender is not providing financing for the vertical construction phase.

Vertical Construction Loans

The vertical construction phase is what most people think of when they imagine a property being developed, and entails the actual construction of the structure. It can involve a variety of asset types, including developments of single-family homes, apartment buildings, townhomes, or condominium complexes.

Typically, most of a construction loan is held back in an escrow account that is released on a certain schedule after a pre-determined portion of the construction is complete and verified by an inspector. This minimizes risk for the lender while providing the borrower with the funds needed at each stage of the process.

vertical construction loan

Post-Construction Loans

Once a project is complete and before its full profitability has been realized, financing is often needed to stabilize it. For an investment property, this means generating income. Stabilization is typically required to qualify a property for permanent financing that will carry it throughout its lifecycle. If a borrower cannot lease a property, they will need to work with the lender to determine a path forward (i.e. negotiating modifications to the loan).

Conclusion

As we’ve demonstrated, obtaining financing at these various stages of your development is a critical component to ensuring its success. Be sure to work with a lender such as Broadmark Realty Capital that has the experience, strong balance sheet, and technical expertise to maximize the value of your real estate project, regardless of the stage at which you get involved.

Broadmark Realty Capital Inc. (NYSE: BRMK) is an internally managed real estate investment trust (“REIT”) offering short-term, first deed of trust loans secured by real estate to fund the acquisition, renovation, rehabilitation, or development of residential or commercial properties. The company has originated over $2.2 billion in loans since its formation through a rigorous and responsive underwriting process. Have questions? Contact one of our lending experts today.

Broadmark Realty Capital lends in Denver, Florida, Georgia, Idaho, Maryland, North Carolina, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, Washington D.C., and Wyoming.

How the Commercial Real Estate Lending Environment Might Differ in a Post-COVID-19 World

How the Commercial Real Estate Lending Environment Might Differ in a Post-COVID-19 World

It goes without saying that the global toll of the COVID-19 pandemic has been substantial. Like many other industries, the real estate lending sector has also been impacted. However, the market is still functioning, and investors still have access to financing. But how that funding is accessed, as well as the terms and structures of loan packages, have changed slightly to reflect the new environment. In this article, we’ll explain what investors should be aware of and how construction lending can evolve as the nation recovers from the pandemic.

hard money lending

Americans on the move: How some multifamily and single-family markets have changed

The pandemic has allowed many residents living in high tax and cost-of-living areas to move to locations that are less-densely populated and have cheaper costs of living. John Burns Real Estate Consulting found in a recent survey that 59 percent of new single-family rental tenants are relocating from urban locations, with 41 percent of new tenants moving from other suburban locations. Only 32 percent of new single-family tenants moved from apartments, meaning single-family homes are not enticing apartment renters to transition to detached houses or townhomes in large numbers. Instead, renters are benefiting from what they likely perceive to be more livable locations.

The 2020 U.S. Moving Migration Patterns Report from North American Moving Services shows Illinois, New York, California, New Jersey, and Maryland to be the top five states that people left. The most popular states for in-migration were Idaho, Arizona, South Carolina, Tennessee, and North Carolina.

Idaho led with inbound movers in 2020, as 70 percent of its population was moving in and 30 percent moving out, followed by Arizona with 64 percent inbound and 36 percent outbound. Tennessee and South Carolina both had 63 percent moving in and 37 percent moving out, while North Carolina had 61 percent inbound and 39 percent outbound.

Rounding out the top eight states for inbound movers were Florida, Texas, and Utah. Phoenix, Houston, Dallas, Atlanta, and Denver were the cities with the most inbound movers.

Suburban locations will play vital roles in the success of single-family rentals moving forward, including build-for-rent (BFR) communities, which are typically groups of single-family homes that benefit from the professional management and amenities of a full community. BFR communities are usually located near hospitals, military bases, and job centers with great walkability.

How private money lenders have navigated the lending market

Private money lenders have approached the recovering market in new and different ways. Some pressed pause on transactions initially to focus on their current portfolios, while others continued to fund new projects. Those that continued to lend may have made adjustments to their loan guidelines. These changes could have included:

  • Reduced loan-to-value (LTV) ratios; the industry average LTV ratio was around 70% before the pandemic and has now dropped to approximately 65%
  • Removal of at-risk property types from deal pipelines, such as retail and hospitality
  • Addition of more resilient property types to deal pipelines, such as residential and multifamily
  • Requiring or increasing interest reserves
  • Working with more experienced borrowers with higher levels of liquidity

There is also a group of lenders that are choosing not to make any adjustments to how they structure their financing packages. They’ve continued with business as usual, enduring the delays and adjusting for possible new market risks.

How traditional lenders navigated the lending market

Mortgage financing availability was firmly tightened at the onset of the pandemic and at one point reached its lowest level since December 2014. This tightening was driven by most lenders removing their products’ availability to borrowers with low credit scores and high LTV ratios. In addition to the adjustments to LTVs, maximum loan amounts have decreased across the industry.

Lenders like government-sponsored enterprises Fannie Mae and Freddie Mac have cut their lending volumes and made their underwriting more conservative. Importantly, they have instituted reserve requirements that require borrowers to put money in escrow for 9 to 12 months to cover future payments. In the past, they have financed up to 80 percent of a purchase price without reserves. This generally allowed real estate investors to acquire an asset with as little as 20 percent down.

Conclusion

Unlike traditional lenders who have strict regulations, private money lenders are nimble and can quickly pivot to meet changing market demands and unique circumstances. This has been more apparent throughout the pandemic, an event that has forced many lenders to adjust to an unexpected environment and which may result in some mitigation measures continuing into the near future.

With the speed and guidance of experienced and trusted lenders, commercial real estate developers and investors can continue to move forward and succeed, even in the midst of a market downturn.

 

Broadmark Realty Capital Inc. (NYSE: BRMK) is an internally managed real estate investment trust (“REIT”) offering short-term, first deed of trust loans secured by real estate to fund the acquisition, renovation, rehabilitation, or development of residential or commercial properties. The company has originated over $2.2 billion in loans since its formation through a rigorous and responsive underwriting process. Have questions? Contact one of our lending experts today.

Broadmark Realty Capital lends in Denver, Florida, Georgia, Idaho, Maryland, North Carolina, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, Washington D.C., and Wyoming.

Five Ways for Builders to Reduce Waste

Five Ways for Builders to Reduce Waste

Can you guess the volume of construction waste generated annually by construction projects worldwide? What about the U.S. alone?  According to a report from Construction and Demolition Recycling in 2018, the world’s yearly volume of solid waste will nearly double to 2.2 billion tons by the end of 2025. Construction waste makes up more than half of overall waste generated annually. This includes materials such as wood, shingles, asphalt, concrete, and metal.

construction waste from a building

Additionally, construction continues to be costly. In August, construction input prices increased by 0.6 percent from July according to an Associated Builders and Contractors analysis of the U.S. Bureau of Labor Statistics’ Producer Price Index. Nonresidential construction input prices were up 0.3 percent for September.

Much of this waste can be recycled or reused; however, sometimes after a long day of labor, sustainability, and care for the environment can be overlooked. That said, sustainable building practices are growing in popularity and builders are finding competitive advantages in saving on material costs or cutting costs associated with waste. Below are five strategies to reduce waste on your job site.

  1. Reduce Packaging

Work with manufacturers to minimize packaging around products such as plastic, cardboard, and paper to reduce waste that will end up in your dumpster. Approximately 10-12 percent of a construction project’s waste comes from cardboard.

How to Reduce

  • Purchase materials in bulk instead of individual packages.
  • Use returnable containers and packaging materials.
  • Reuse non-returnable containers. You can hold materials in tubs, barrels, and buckets.
  • Donate non-returnable containers to community organizations if you aren’t using them.

 

  1. Reuse and Recycle

Place recycling bins on the job site, or at the end of the day, sort materials into a reuse pile instead of throwing everything into the dumpster. This not only helps the environment but will help lower transportation and landfill costs.

Recyclable materials:

  • Asphalt
  • Brick
  • Concrete
  • Carpeting
  • Cardboard
  • Drywall
  • Gravel
  • Metal
  • Paper
  • Plastic
  • Roofing
  • Wood
  • Sinks
  • Countertops
  • Baths

You can recycle these materials at a construction and demolition (C&D) recycling facility if one is available in your market, and rates are typically competitive with landfill tipping fees. Lastly, try to sell unused materials back to the supplier.

  1. Deconstruction Instead of Demolition

Deconstruction is the process of selectively disassembling a building piece by piece to preserve materials and eliminate waste. The salvaged materials can be reused and transformed into valuable resources that can be sold to be used on future construction projects. Additionally, donated materials can be used as tax write-offs.

The demolition process is similar to that of deconstruction in its removal of high-value, reusable materials. However, the main difference is there is a lower chance of preserving materials through demolition because the process is focused on speed.

  1. Proper Material Storage

Make sure that your products are stored away from the sun and water. Covering your materials will help prevent having to buy new supplies as a result of tossing rotten ones due to degradation from the elements. Secondly, properly storing your materials will avoid theft and the costs associated with replacement.

  1. Plan Your Materials Ahead of Construction

Planning and proper organization means fewer mistakes and fewer materials being wasted on the job site. You can reduce labor and product costs by properly measuring and ordering the right sizes of materials – this prevents cutting or altering larger-sized products. If you have scraps from cutting materials down, try to reuse them. For example, small pieces of wood can be shredded down into mulch if they’re not stained or painted. A plan that includes the following would help reduce waste disposal:

  • Account for potential waste
  • Supply the job site with recycling, compost, and waste bins
  • Calculate the exact amount of materials and order only what is needed
  • Identify recyclable materials
  • Educate workers on sorting waste as it’s produced

The price of dumping materials is becoming more significant to builders as the costs of materials continue to increase. The less you throw away, and the more you reuse, the less money you spend on construction waste disposal. Consider these five ways to save money and the environment by reducing construction waste on your next build.

Broadmark Realty Capital Inc. (NYSE: BRMK) is an internally managed real estate investment trust (“REIT”) offering short-term, first deed of trust loans secured by real estate to fund the acquisition, renovation, rehabilitation, or development of residential or commercial properties. The company has originated over $2.2 billion in loans since its formation through a rigorous and responsive underwriting process. Have questions? Contact one of our lending experts today.