Even experienced commercial real estate (CRE) investors and developers can find themselves illiquid due to a variety of factors (capital locked in assets, bank lending constraints, timing mismatches, etc.).
However, that is not a reason to stay out of the market.
Buying commercial property when you are illiquid is possible if you take the correct steps and employ the right strategies.
In what follows, we will consider five things you can do to buy CRE without liquidity.
1.Get earnest money deposit financing
The first step to completing any CRE transaction is to make an earnest money deposit (EMD). CRE sellers see such payments as a sign of serious interest in the property.
Even if you are not liquid enough to pay for the property, you must first secure funds to pay the EMD.
You can do this with a company like Duckfund. They will provide EMD for any CRE deal of interest in major US markets. You can complete an application in two minutes and get the money transferred to an escrow within 48 hours.
Duckfund also allows you to pursue multiple deals at the same time.
2.Consider government-guaranteed loans
Since you are illiquid, you want to secure loans with very high loan-to-value (LTV) or loan-to-cost (LTC) ratios.
SBA 7(a) and 504 loans can provide up to 90% LTV and LTC, leaving you with only 10% equity injection.
However, qualifying for these loans requires strong personal and business credit history.
More importantly, SBA loans only support owner-occupied (at least 51% of the property) rather than investment properties. If you want to use them fully for investment purposes down the line, then you must have a plan to refinance the loan.
3.Prioritize creative financing strategies
If SBA loans are too restrictive or inaccessible, you can try other creative financing strategies.
For example, with seller financing, you can negotiate a no-down-payment financing arrangement with the property’s seller or use cash substitutes like unused cars, appliances, and furniture. Some sellers can even provide you with downpayment in exchange for a higher purchase price.
You can also consider rent-to-own opportunities, especially the ones that allow lease arbitrage.
4.Consider joint ventures and partnerships with liquid investors
While debt financing tends to be popular among CRE investors and developers, equity financing should not be neglected.
When you are illiquid, you can consider joint ventures or partnerships with liquid investors. In this situation, you can offer your expertise on deal structuring and take care of the administrative sides of things (evaluating the property, finding investors, structuring the deal, overseeing the purchase, arranging profit distributions, etc.).
5.Explore crowdfunding
Crowdfunding is another equity-based financing option.
Many crowdfunding platforms now exist in the US. To use them, you need to have a solid history of profitable deals and create a great offer that people can get behind. However, you should avoid promising what you cannot deliver.
Also, crowdfunding will usually be a form of gap funding since many investors on these platforms have a short time horizon. Thus, you need to focus on getting more permanent funding.
If you are illiquid and are ready to complete deals, start by securing earnest money deposit funding from Duckfund and then using any of these strategies to secure the property you desire.
