When taking out a loan for buying residential or commercial real estate, buyers need to fill out more paperwork than they probably would have expected. At times, it seems like banks make this paperwork hard to understand on purpose. However, by learning what specific terms mean, you can better understand the paperwork– before you sign it.
Residential Real Estate
Residential real estate is any property that is specifically put aside for people to live on. This mostly includes houses. Depending on local laws, this can sometimes include apartment complexes; apartment buildings may fall under the commercial real estate side in some areas. However, it does not include hotels. More importantly, buildings that are specifically called residential real estate cannot be used for commercial purposes, such as operating a business.
Commercial Real Estate
Commercial real estate is any kind of property that is owned and operated with the goal of making money. This category can include everything from convenience stores to health spas. Basically, any property that is selling something or offering a service can count as commercial real estate. Most apartment complexes fall into this category. Farms will sometimes be in this category as well.
A property investor is a person or a group of people who are investing in any property. Investors usually buy into commercial real estate properties, unless they are planning on converting a residential property into a commercial property (like turning a home into an apartment building). Investors, whether they take out a loan or not, are looking into buying existing properties. They are not in the market for properties that are currently in development. The loans they take out will be similar to mortgages or business loans.
A property developer is a person or group of people who are looking into investing in a property that is currently in development or a property that will begin development soon. Property developers can both invest in residential and commercial real estate projects. Oftentimes, property developers need to take out loans in order to fund their investment. These loans will be similar to mortgage loans.
Understanding bank and loan jargon is half of the battle when it comes to filling out loan paperwork. By having a better understanding of these terms, it becomes easier to know what kind of loan you need to apply for. From there, you can move forward in your journey to buying or investing in a piece of property.