It can be difficult to obtain a commercial mortgage loan. There are issues like economic conditions and your ability to relate to the interest of the lender. Knowing different aspects of a lenders approach will help you through your request.
1. Stay Organized and Be Prepared
The lender will want to work with someone who can be financially responsible so staying organized and being prepared shows your level of professionalism. It is important to have all your documents in place so they are easily ready to present to the lender.
2. Have Knowledge of The Commercial Asset
You will need to know the highest and best use of the property and you should have already examined the property before visiting with the lender. For example, you should evaluate if rent prices are above or below market value. Find solutions for what can be done to resolve problems.
3. Determine Practicality
Do not approach the lender with an impractical request because it will be a waste of both your time. Carefully calculate what will work for you and the lender. Use the NOI formula:
Potential Rental Income
– Vacancy & Credit Losses
Effective Rental Income
+ Other Income
Gross Operating Income
+ Operating Expenses
Net Operating Income
In addition, determine what your leverage boundaries will be. It is a terrible idea to approach a lender seeking 95% LTV. There are several risk factors like asset type and quality. Evaluate the current market conditions to figure out what works best for you.
4. Evaluate The Essence of The Transaction
There are can be issues when it comes to bank lenders and non-institutional bank lenders. Things like non-recourse and out-of-state sponsors contribute to your ability to get financing. You will need to research will lenders will or will not be suitable for your transaction.
5. Have Your Documents in Place
Aside from having a business plan, the financial plan is most important in the end. You need to have a record of financials from the past 3 years, which include rent rolls and taxes from the property. In addition, you will need to provide your own financials. Include your assets and liabilities, along with net worth and taxes. Understand your credit score and know that anything under a 700 could impact you. Have the majority of liabilities paid off and make sure there are no inaccuracies on your credit report.
Lastly, have your team ready to go. Find people who can help you with accounting, legal, and title information. This is helpful in reducing errors. Then you are set up for success.
Are you an investor who is ready to successfully purchase property, rent out space and make a profit?
Please contact Sound Mortgage to evaluate your potential commercial loan. We will simplify the process so you can spend more time living and less time managing.Request a Consultation or check out our current Investments for more information