In: Real Estate

The Benefits of Mezzanine Finance for Commercial Property Investment

When it comes to real estate investment, a majority of people prefer to invest in commercial properties rather than residential properties. It helps them earn profits even when the real estate market isn’t doing well. However, these properties are relatively expensive, which is why investors look for financing options.

Mezzanine financing has gained popularity due to the various benefits it offers. However, before we highlight why you should consider this option, let’s dig into what mezzanine financing actually is.

What Mezzanine Financing?

When investors are interested in a property, they look for financing options for investment. Back in the day, most investors preferred taking loans from a bank. But mezzanine financing facilitates them to get funds with ease.

Investors go for senior debt to arrange funds for investment. However, when they have maximised their debt capacity and need additional funds to grow their business, they look for other financing options. Under such circumstances, they can either raise outside equity or opt for mezzanine financing.

Mezzanine financing, basically, is a hybrid between equity and debt. If anything goes wrong, this loan will be returned once all other loans are cleared. Despite the risks, this option attracts financers because it gives them the opportunity to convert the security into equity if needed. The price is specified in the agreement to avoid any conflict down the road.

At www.stamfordcapital.com.au, you can apply for mezzanine finance for commercial real estate investment.

Why Mezzanine Financing Attracts Investors?

We can say that mezzanine finance is a combination of benefits and risks. Although it’s an expensive form of a loan, it’s an attractive option for investors. It’s because they have the opportunity to get huge profits on their investment.

As compared to other types of loans, mezzanine financing offers higher interest rates. If real estate market crashes, the investors won’t have to worry about their investment. It’s because they can convert their loan into equity in the property.

The repayment period for this loan is much shorter than commercial mortgage and residential mortgage. The lenders are obliged to clear the debt within a brief time. Therefore, investors can earn revenue in a relatively short time.

Commercial properties are relatively expensive. Instead of investing their entire savings in a property, investors prefer to go for varying financing options. Mezzanine finance has become an attractive option for investors due to the plethora of benefits it offers. It allows them to spread the finances among different resources so as to reduce the risks.

Moreover, a majority of mortgage lenders prefer to invest no more than half the current market value of the property. Under such circumstances, they look for alternative financing options to get funds.

Mezzanine finance helps them arrange the required funds and secure their investment. Since it doesn’t require collateral, mezzanine financing is a risky option for investors. However, with greater risk come higher profits. Therefore, investors prefer to go for mezzanine finance so as to earn higher revenue.