In this article we explain how to obtain commercial real estate loans for the purchase of shopping malls, hotels, and generating other income - Property. After you read this article, you should understand what you need to qualify for a commercial real estate loan, which, as you apply with respect to the typical interest rates and fees, and a loan.
If you have to expect got good credit, have 3 or more years in the business, the majority of the building that you want to buy will occupy and have a 15% down payment, you can get your SBA loan fast tracked , Contact SmartBiz to get started
. Note: If you are buying an investment or income property, we recommend that you find potential lenders by C-loans to 750 banks and real estate connects lenders. If you want to fill out an application
Commercial Real Estate Loans:.? Where can I One
There are many types of lenders that issue commercial real estate loans. Big banks, small community banks, life insurance and private "hard money" lenders are all in this business. Knowing what you can to take the difference between getting to make an affordable loan and are rejected or biting off more than you can chew.
to keep a simple tip in mind to go a lender that is suitable for the size of the loan you want. As C-loans puts it. "You are not to take a $ 0,000 commercial real estate loan application to a bank of the size of Bank of America usually
In contrast, you will not want to take a $ 15 million commercial real estate loan request to the small bench of the northeast corner of Tiny Town. "the banks can take several months to issue a commercial real estate loan.
Life insurance companies also make commercial real estate loans. They offer good prices but are very picky about what properties they lend against. You usually want only the desirable properties, and they require large down payments.
private hard money lenders invested money of investors and are very active in the commercial real estate space. They charge higher prices than the banks and life insurance but not a lot, and they lend money faster than other lenders.
SmartBiz can get funded in less than 2 months qualified borrowers. With loans up to $ 5,000,000, and terms as long as 25 years, people are changing idea of what to expect when for SBA commercial real estate loans application.
visit SmartBiz
I Will Qualify?
Each lender has its own specific qualification criteria, but there are some general things to keep in mind. for a commercial real estate loan for an income producing property To qualify, you should have a property with good potential and a clear vision for the success of the property.
to get Clear Business Plan
for a loan, you have to prove to the lender that you understand the property, buy and make a profit. If you can convince the lender about this, become things like your credit score and personal assets less important (especially for higher end offerings).
you should your vision to capture in a business plan that includes a description of the property, a description of the market and all financials of the deal. The banks are organized by a "sponsor" (ie, the potential buyers) that has collected in a single package with a clear vision and all necessary financial documents to be impressed. The specifics of your business plan is the type of property you depend buying.
For example, if you buy a property free, your plan needs to detail how you plan to get the tenant to fill the property. You need to convince the bank believes that your property will have a steady income stream, so you can afford the monthly loan payments. If you buy a property that already has tenants, you need to show that you know the status of each tenant lease and have a plan for the renewal and replacement outgoing tenants with new.
The general economic situation and the area in which your property is located are also important. If you are planning to buy real estate in an economically depressed area, you must clear plan how you will attract tenants and customers. Otherwise, the bank may hesitate to give a loan.
For help creating a business plan, visit. Our recommendations of the best business plan software Our recommended software is live plan.
Credit Score & Personal Financial History
The meaning of the individual credit scores and personal assets for this type of loan depends on the size of the deal.
. For smaller deals (under $ 3 million), banks will examine closely personal credit scores Ideally, you should have a credit rating of 660 or more. Over 700 further increases your chances of qualifying. Not sure what is your credit score? Check it for free.
In addition, your numerical credit score, your credit history should also be positive. This means that no bankruptcies in the last 7 years or foreclosures in the last 3 years. You should not open liens or judgments have either. In some cases, to overcome a bad credit score your financial history. if your credit rating experienced a temporary decline due to a divorce, for example, you may be able to explain to a bank and even to obtain a loan.
If you have a high personal net worth, it can help you get a loan, you do not get otherwise. If you are looking for a property with quality tenants like a Walgreens or a Home Depot to buy, then you know the lender's property is a safe bet and do not give much thought to your personal assets. If on the other hand, you can get a loan for a free shopping center want your personal assets, the lender may feel comfortable enough to grant the loan.
For large deals (over $ 3,000,000), lenders do not know much about individual credit scores or individual care wealthy. They are more concerned with the property itself, tenants, and the team behind the project. Moreover, the further institutional is you get, the less lenders care about the individual credit scores. For example, if a property management company, trust or other commercial enterprises is the potential owners of the commercial property, then that business credit score company will be considered rather than personal credit scores.
The experience of the management team
A lender will look closely in the team who will be in charge the property. As will be you and your team, the say, they want to make sure that you share the experience necessary to the property successfully run.
Does that mean you do not get a loan if you have decades of experience not to invest in commercial real estate? No experience counts more with income producing properties such as shopping centers. If you already have a shopping center, it will be much easier to get a loan for a second purchase. If you have no experience, you will show the lender you need to know what you are doing, by a solid business plan with and surrounding yourself with a qualified, experienced team.
Not sure whether or lease to buy? Check out our comparison guide. Buying vs. Leasing Commercial Real Estate
property valuation
Lenders is a third party which have the property assessed. They will also evaluate their livelihoods when determining whether to provide a loan and how much they can lend you.
deposit and loan ratio to Value
Loan to Value (LTV) = Loan Amount Property Value
comparing LTV -Ratio, the amount of the loan compared with the estimated value of your property. The LTV varies depending on the type of commercial property you are trying to buy and the type of lender you approach. However, most banks want a LTV not more than 70-80% sometimes offering and private lenders even less funding.
If a lender has a 80% LTV ratio, meaning that it give you a loan for 80% of the purchase price, and you have the remaining 20%. The lower the LTV ratio, the better, because it means that you can pay more equity in your property, a smaller loan balance and thus more capacity back the loan in full is.
example : You want to buy a shopping mall. The bank hired a third estimator (you specify the fees usually pay), the rated at 1,000,000 $ the value of the property. You only have $ 100K for a down payment and have the remaining $ 00,000 to acquire, to borrow the building. This brings the LTV to 0% ($ 00K / $ 1 million). This is too high for most lenders. You need to come up with at least another $ 100K deposit before they enter the loan.
income-generating capacity
The Debt Service Coverage Ratio (DSCR) outweighs the income generating capacity of the property you purchase against all your debt payments. It helps determine a loan officer if you have the ability, is to make your loan payments.
DSCR = Annual Net Operating Incom e Annual debt
depends the DSCR calculation on the net result of the commercial property you plan to buy. For an income property producing like a shopping mall, your rental income from tenants is what counts.
The denominator of the DSCR includes not only the balance of the loan to get you to try, but principal and interest payments on all your loan. Lenders typically like to see DSCR of 1.25 or higher . This gives you a respite, if your company takes the income of a hit, so you 'your loan payments to struggle not to make
example .:
you want a shopping center with several tenants to buy the rent to pay. The projected net income (gross income - annual spending) of the shopping complex is $ 1 million. If you on all your loans add up the annual payments to (including the loan you are applying for), they add up to $ 700,000. This gives you a DSCR of $ 1 million / $ 700,000 = 1.43. This means that after you make all your annual loan payments, you will be left with 43 percent of your profits. So you are in a great position to get the loan to buy the mall.
Collateral and personal guarantee (recourse against non-recourse debt)
If you receive commercial real estate to buy a loan, the property secures itself the loan. Accordingly, with sufficient collateral are generally not a problem for most borrowers. If you, other collateral such as office equipment or accounts receivable are also required a credit risk. You can also provide additional security, you need to forgive your rental income from your tenants to the lender. In this case, if you can not repay the loan, the lender, using the achieved rental income to meet the loan payments.
In some cases a personal guarantee can the real estate collateral may be required in addition. This means that if you do not pay the loan, the lender personal assets like car or use at home, can.
you have to guarantee a loan for smaller deals personally, usually under $ 3.5 million. Moreover, according to Investopedia, you are asked to personally guarantee a loan if a commercial establishment of the owner of the property, and that company has not established a business credit score or financial track record. For example, when you make a shopping center to buy a new LLC, you may need to personally guarantee loans the bank to make comfortable enough to grant the loan.
Lenders use the term to describe "recourse loan", a loan that is in addition to secured by personal assets. In other words, if you are not sufficient to repay the loan on the loan and the proceeds of the property standard, the lender can come after your personal assets. If the bank has no doubt different from the real estate, the loan collateralizes is called the loan "non-recourse". Larger deals and projects which are conducted by well-established commercial facilities (eg property management) are more likely than smaller deals nonrecourse because the lender Veterinarians Property income generating capacity more thoroughly for larger deals. to be
Cost & Loan Terms
interest
The average interest rate loans to commercial real estate-backed bank is 5-10 %. Depending on the bank, these rates may be fixed, or may vary in the market it.
The interest rates are higher for private hard money lenders. Expect 10% to 18% interest on fixed moneylenders
repayment schedule
Commercial real estate loans for income producing properties in a structured two species are usually .:
- [restructure
- interest; OR
- balloon payment
With an interest rate adjustment, this means the loan is a variable rate loan. You have an initial interest rate for the first 1-5 years, at which point increase or decrease the speed can on what the market is like at that time. In order to estimate the monthly payments on a loan with a rate reset, try our Commercial Real Estate Loan Calculator.
The other popular type of commercial real estate loan is a balloon loan. With this type of loan, you will generally have 5-10 years duration, but off the loan over a longer period. Example: Let's say you get $ 500,000 amortized loan at a rate of 6% over 30 years, a 7-year. You will pay $ 1,472 per month for 7 years. At the end of the seventh year, you will still owe $ 406,352. You must either pay this balance at once in a single balloon payment or with another loan (from either the same lender or another lender) refinance. If you refinance, remember that you will pay a higher interest rate may end up on the state of the market at the end of the term based. Use appreciate this Balloon Loan Calculator monthly payments on a balloon loan.
Other fees
You may be responsible for certain fees when you apply for commercial real estate loans. Some things to look out for:
- application and packing
- review and inspection fees
- Environmental Studies
- prepayment
application and packing charges are an initial fee that may be charged for the bank even pull your request for a loan into consideration. They may range from $ 500 up to $ 12,000 or more! Complex offers institutional owners and great deals are involved carry larger fees.
The costs covers such things as obtain credit reports, and the time the lender to find information about your business in a public record. How do you know if there is a legitimate charge? If you are dealing with an FDIC-insured bank, you will probably not have to worry. If you are dealing with an independent broker to be cautious.
appraisals, surveys and environmental studies
appraisals, surveys and environmental studies can also be a fairly large chunk of change. The lender will instruct a licensed appraiser to assess the value of the property. Fees vary depending on the size and type of property you buy, but estimates on average $ 2,000- $ 3,000.
Surveyors the limits of your parcel of land and charge about $ 300-400 for larger (more measured properties). Environmental studies, which are mandated by the EPA, are designed to study the impact of your real estate purchase on the local environment, endangered species all of the air quality in consideration. The costs typically range from $ 300- $ 00, but can go higher significantly depending on the size and type of property.
prepayment
Be with commercial real estate loans because of their large dollar amounts. Of prepayment options carefully, which are unfortunately common After Metropolitan Capital Advisors, a real estate investment company ", a typical structure of a 5-year loan with a prepayment be blocked the first two years, followed by 3%, 2% and 1% prepayment penalty each in the following years." this means that you can not pay the loan for the first two years in advance. Then there is a fee, which steadily decreases every year. Your prepayment penalty may be structured differently. Make sure that you are aware of prepayment penalties before you sign a credit agreement
How to apply -. The details of your loan application
If you and your property meets the minimum requirements to qualify for a loan, you must be willing to submit your loan application. Different lenders will require different documents for loan application. At least you have the following: Personal and business financial statements, CV, Real Estate Proforma and Rent Rolls (if applicable)
require Personal and business financial statements .:
Banks in to provide control all clients, partners and guarantors of the company as part of the loan application personal statements and personal tax returns for the last 2 years available. A personal financial statements will list individual assets and liabilities. Assets include things like savings and checking accounts and shares. Liabilities include things like debt personal credit card, mortgage, car loans etc.
financial statements and annual tax returns, where the characteristic, also to be submitted.
CV:
highlight commercial real estate or business industry experience on your resume. Include applications for yourself and highlight your entire management team and relevant qualifications. For example, if you are a hotel property acquisitions and your VP has returned many years of experience, make sure to mention
Real Estate Pro Forma .:
a real estate pro forma is basically another word for income and expense projections. You should provide at least 3-5 years projections.
The pro forma for an income property produce must consider for vacancies. The property is not the year to increase the capacity to be filled, and your projections reflect this fact. Since the actual vacancy rates are difficult to predict, a fixed percentage of vacancies is generally accepted. You also need things prognosis as lease renewals, lease commissions and tenant improvements.
Click to see here for step-by-step instructions for a real estate pro forma preparation and a sample.
rent rolls:
you must rent include roles. Rent roles show the rent each tenant pays if each tenant lease expires and other information about each tenant. Here is an example of rent roll.
The search for a Non-Bank Lender
equity and mezzanine financing
Usually, equity financing is stacked a loan for the purchase of commercial real estate. For example, a borrower could get a bank loan with a 80% LTV ratio, receive 10-15% LTV through equity financing, and to finance themselves, get the rest. However, you must be careful about the use of equity financing, as there are often limitations in the loan agreements on change of ownership in the property. If the property changes hands, the lender could you explain in default of the loan.
Investors may your family and friends and Real Estate Investment Trusts are. Attending meetings by you local chapter of the National Real Estate Investors Association You can also connect with investors. You can even find investors through special property crowdfunding sites like RealtyShares. With equity financing, you have some to sell shares in your property to the investor, so you lose some property.
Mezzanine financing a type of financing is if the investor a junior lien takes on the property and can take over the property when the management team against a collar of the loan agreement. For example, if you keep your property, promise at 75% of capacity and you lose half of your tenant, the mezzanine lenders can come and take over the property from you.
The Bottom Line on commercial real estate loans
Commercial real estate loans can be intimidating and seem difficult to obtain. However, as long as you successfully have the ability to operate a clear plan, most lenders are willing to give you a loan. Of course, does not hurt a property with good tenants and in an economically healthy range of choice!
If you an income in their sights producing property and are willing if you qualify for commercial real estate to find out financing visit, carbon credits.
If your business will be out of the building into operation, and use at least half the floor space, talk to a commercial real estate loan expert from SmartBiz.
visit SmartBiz
0 Komentar