Perfecting the Retail Tenant Mix in a Shopping Center

In a retail property, the tenant mix will be a key factor in the success of the property and the strength of the market rental. A correctly designed tenancy mix will encourage future sales and minimize vacancies. That will have a direct impact and benefit to the property owner and landlord, as well as the tenants in location.

The landlords of retail shopping center’s and properties would be well advised to devote time and energy to the tenant selection and placement process. This can be successfully undertaken as part of the yearly business plan for the property.

As a special note, the business plan for the property should be created once per year, and adjusted quarterly based on the trends of the market, economic conditions, financial performance, and vacancy factors.

Here are some ideas to help you with the property planning process and tenant placement:

  1. Review the competing properties in the local area. Some may offer factors of attraction to your tenants and potentially draw some of those tenants away from you. For this very reason, your lease strategies and rental structures need to be well considered for tenant stability, rental advantage, and competition. Your property needs to be the best value for ongoing occupancy and potential trade.
  2. Some of those competing properties will have tenant mix structures that are quite successful. Look at the factors of clustering within each competing retail shopping center. Determine the clusters that work successfully and why that would be so. There will always be positive relationships between some tenants to the benefit of ongoing trade. Replicate the good factors that can have benefits to your property.
  3. Review your existing property with due regard to rent reviews, options, and lease expires. Some tenants will choose to leave the property at the end of the lease term. You will need to prioritize your tenants into groups so that you can negotiate successful lease transactions with the priority tenants. Tenant retention within a property business plan is a useful concept. The retention plan can allow you to work well in advance when it comes to priority tenants.
  4. As a general rule, it is not productive to offer option terms to tenants at the time of initial lease negotiation. The landlords of larger shopping centers typically avoid giving options. They would rather negotiate a new lease with the successful tenant at the end of the initial lease term if the tenant has proven themselves in occupancy within the property. A single lease term always gives the landlord maximum flexibility when it comes to tenant relocation and any required tenant mix changes.
  5. Understand the linkage and benefit between specialty tenants and anchor tenants within your property. The trade and the activities of the anchor tenant should encourage more customers to the property and potentially more trade for the specialty tenants. Encourage your anchor tenant to participate strongly in the future of the property and maximize customer interest.
  6. Develop a marketing plan for the overall property, and to help boost the trade of the tenants within. It is likely that the marketing plan will require contributions from the tenants, and that will require their agreement. That agreement can be achieved through the standard lease documentation at the time of lease negotiation.

It is not hard to perfect a retail tenancy mix within a shopping center. It is simply a matter of understanding the profiles of the current tenants, the opportunities that the customers provide to the property, and the prevailing market conditions. Match your property tenants to the demographics of the local area and the customers’ requirements.

What Services Do Property Management Companies Offer?

Owning real estate is a wonderful feeling, especially for those who have really toiled for many years to become a property owner. Though it might sound a little materialistic, but a property is actually a mark of someone’s hard work. Thus, when a family has to relocate to some other place far from their land or property, due to job commitment or any other reason, it is a natural concern to be worried about the property. Managing the property effectively, without keeping an eye on it regularly, is almost impossible for the landlord. This is exactly when a property owner should start looking for a professional property management company. However, it is good to know what services these property management companies offer before you go ahead and fix a meeting with any agency. This would actually give you a clear idea of what you should expect and ask for while interviewing the property manager.

Basically, these companies deal with flats, villas, independent houses, rental apartments and commercial properties. Once you sign a legal agreement with any of these companies, it actually becomes their responsibility to rent out your property by searching suitable tenants. To look for right tenants, they advertise your property through the local media. The replies that come to the property advertisement are promptly attended by the company. Their expert staff then shows the whole rental property to the prospective tenants. In fact a clear and detailed report is provided to the landlord on all those potential tenants who had come to check out the property. This is to ensure that the landlord makes a right decision. Once the tenants are finalized, then the company would execute a rental agreement.

The responsibility of the company does not end here. They collect monthly rent on the landlord’s behalf and deposit it into his bank account. Apart from the timely rent collection, the professionals would also visit the property regularly, in order to make sure that it is efficiently maintained and not harmed by the tenants. Professional photographers are hired to take the photographs of various parts of a property to be sent to the landlord. Though these visits by the property managers are periodical, they are always keen to help tenants if they find anything objectionable.

Also, in case there is a repair work to be done, the company takes care of it by appointing an external contractor to fix the problem areas. Another very important service offered by a property management agency is conducting an inventory audit. It is conducted when a property is rented out to a tenant and when he/she vacates it. The reason for conducting this audit is to make sure that all physical assets of the property are in a good condition. To summarize, the services proffered by a property management company play a pivotal role in reducing the burden of a landlord, owning multiple properties. Therefore when you actually enter into a contract with such a company and you can indeed be totally assured of getting quality services.

SBA 7a Vs 504 Loan Programs – How To Decide Which Loan Program Is Best For You And Your Business?

As a small business owner who is ready to purchase a commercial property for your business, you might find yourself faced with a seemingly difficult choice between the SBA 7a loan program, or the SBA 504 loan program.

As you make your decision about the sba 7a vs 504 loan option, chances are you are receiving conflicting advice and information. In fact, its entirely possible that your lender might be offering both of these commercial mortgage programs to you – and they might even try to convince you that the SBA 7a loan is the better option.

In reality, the sba 7a vs 504 debate isn’t even a contest. The SBA 504 commercial mortgage program is by far the better commercial mortgage program for a small business owner, for a number of reasons. If your lender tells you that a SBA 7a loan is the better option, they are likely doing so because they have an agenda that doesn’t match your own.

When comparing the sba 7a vs 504 loan programs, the biggest difference you’ll find is that the SBA 504 program was actually designed for use by small business owners to finance commercial real estate properties that they buy for their businesses, while the SBA 7a program was not.

The SBA 7a program was originally intended for use in financing business acquisitions, FF&E, working capital loans, and other high-risk loans. However, because of a few unique qualities found in the SBA 7(a) loan program that benefit the lender (and NOT you), greedy bankers began using this program to finance real estate properties, even though it is a dangerous loan for the borrower.

The SBA 7a loan program can be very dangerous for you and your business, while the SBA 504 loan program is very beneficial.

Some of the key advantages of the SBA 504 loan program include:

1. Long-term fixed rates – with fixed rates up to 20 years

2. Ability to finance up to 90% of the total project costs

3. Ability to include closing costs and loan fees in the financing

These are just a few of the many advantages made possible through the SBA 504 program.

And unfortunately, there are several drawbacks to an SBA 7a loan.

If you are currently deciding between the sba 7a vs 504 loan programs, then it is absolutely vital that you educate yourself about the dangers inherent to the SBA 7a commercial mortgage program, and why the 504 commercial mortgage program is a much better and SAFER loan option for you and your business.

The Rights That Go With Real Property

The rights that go with real property can be summed up by the term appurtenances. When real property is sold, appurtenant rights are ordinarily sold along with it. They can, however, be sold separately, and may be limited by past transactions. In addition to knowing the boundaries of the land and which items are considered part of the real property (fixtures vs. personal property), homeowners and lenders also need to understand which rights are being transferred along with that parcel of real estate.

Fee simple ownership includes such other appurtenances as access rights, surface rights, subsurface rights, mineral rights, some water rights, and limited air rights. One way to understand the rights that accompany real property is to imagine the property as an inverted pyramid, with its tip at the center of the earth and its base extending out into the sky. An owner has rights to the surface of the land within the property’s boundaries, plus everything under or over the surface within the pyramid. This includes oil and mineral rights below the surface, and certain water and air rights. Air rights are sometime regulated by each state allowing for air traffic and water rights can differ from state to state.

It is possible, though, for the owner to transfer only some of the rights of ownership to another person. For example, a property owner may sell the mineral rights to a piece of property, but keep ownership of the farm. Later, when the land is sold, the mineral rights will most likely stay with the mining company (depending upon the wording of the contract involved) even though the rest of the bundle of rights in the land is transferred to the new owner. The new owner is limited by the past transaction of the previous owner, and may not sell these mineral rights to another party, nor transfer them in a future sale of the land.

A lender must know if the entire bundle of rights is being transferred (fee simple) or if there are restrictions or past transactions that may limit the current transfer of ownership in any way. This is important because it may have a great effect on the value of the real property. Transfer of access rights for a sidewalk to be placed across the front of a subdivision lot generally would not have a significant impact on the value of a piece of land. Transfer of mineral rights to a mining company, as in the previous example, likely would impact the value.

The 7 Most Attractive Bogota, Colombia Neighborhoods For Foreign Real Estate Investors

The real estate boom in Colombia is definitely attracting more and more foreign real estate investors every day. Growth in Colombia’s capital city, Bogota D.C. has been extraordinary. However, as in all markets some locations within the city have been performing better than others. Furthermore, foreign investment in Bogota Real Estate has been mainly focusing on 7 high profile Bogota neighborhoods which are yielding the best results.

Below, we will list the 7 most attractive Bogota neighborhoods for real estate investors. But first let’s go over how the city of Bogota is actually divided. Bogota has 2 types of divisions: Localities and Neighborhoods. Localities are large sectors that have many neighborhoods within them. Sort of like Burrows in New York City but a bit smaller.  

Bogota Colombia is broken up into 20 Localities (Localidades), each having many neighborhoods:

  • Antonio Narino
  • Barrios Unidos
  • Bosa
  • Candelaria
  • Chapinero
  • Ciudad Bólivar
  • Engativa
  • Fontibón
  • Kennedy
  • Martires
  • Puente Aranda
  • Rafael Uribe
  • San Cristobal
  • Santa Fe
  • Suba
  • Sumapaz
  • Teusaquillo
  • Tunjuelito
  • Usaquen
  • Usme

Where should I Invest in Bogota?

There is actually no, one best answer. However based on current growth and demand the neighborhoods below seem to be great candidates. For foreign real estate investors, coming mainly from the US and Europe, the 7 most attractive and profitable Bogota Colombia Neighborhoods right now, seem to be:

  1. Chico, (Chapinero)
  2. Cabrera (Chapinero)
  3. Rosales (Chapinero)
  4. Santa Barbara (Usaquén)
  5. Santa Lucia (Usaquen)
  6. Santa Ana (Usaquen)
  7. Chapinero Alto, (Chapinero)

It’s interesting to note that these 7 neighborhoods are only coming from 2 Bogota localities; Chapinero and Usaquen. Both of these localities are in the North Eastern part of the city where most of the country’s wealthy citizens live. Profitable Bogota real estate opportunities are abundant in these neighborhoods and construction is very prolific.

A Possible Explanation as to Why Investments in These Locations Have Greater Demand

These are exclusive neighborhoods where housing is a bit more expensive than in the rest of Bogota but the value of the properties tends to increase more rapidly. Rent costs are also higher and will therefore bring in better passive income streams to those who decide to go that route.

What About Real Estate in Other Localities and Neighborhoods?

Of course, there are also many other opportunities in different neighborhoods, such as Cabrera and Candelaria (These being 2 very popular tourist spots in Bogota) however these places mostly attract the younger adventurous type of crowd. Home prices have risen in these areas as well but not as fast as they have in more elite neighborhoods such as the 7 mentioned above.

Commercial real estate opportunities in the 7 neighborhoods mentioned above are also abundant. Foreign company’s and multinational firms are rapidly migrating to these northeastern neighborhoods in Bogota.

“It used to be that Downtown Bogota was the place to find international firms and multinational companies but that has changed” says Fabio Rodriguez, Social Media Strategist at VivaReal.net’s Bogota Colombia office, who helps manage a lot of the firms Real Estate inventory in Bogota and affirms that “…more and more companies are thinking of the North as the best place to have office space.”

Advantages and Disadvantages of Wholesale Real Estate Investing

One of the easiest ways to get into real estate investing is through wholesaling. This requires no cash outlay and does not even involve credit. Basically, the wholesaling process just involves finding property for sale at a discount and then finding a buyer willing to purchase immediately. Of course, the wholesaler quotes a higher price to the buyer. This provides a quick profit to the wholesaler as soon as the sale comes through.

The wholesaler does not need to put out money or use credit because he does not purchase the property that is for sale. He only puts it under contract. This means he has given an offer to buy at a certain price and the seller has accepted that price. The property is under contract for a certain agreed upon period of time within which the wholesaler has to be able to come up with the money, whether on his own or from a third party. The property is on hold during that time.

It would be a huge advantage for a wholesaler to first ensure that he already has a buyer who is actively seeking property to purchase. Only then should he look for property for sale at a discount, and put that under contract. It will then take very little time for the wholesaler to close the deal between the seller and the buyer and realize his profit.

Most wholesalers have a list of ready buyers who are also mostly real estate investors themselves. These buyers may be willing to take on even properties that need rehabilitation. They are ready to take on the costs and risks of rehabbing to be able to resell at a higher profit.

There are no risks involved in wholesale real estate investing. The wholesaler does not pay out any cash nor put up credit. The contract will simply be nullified if the time specified passes and the wholesaler still does not have a buyer. There is no need to rehabilitate or maintain the property. There are no management tasks to perform. Each deal is a one time deal that is quick and produces immediate income.

The disadvantage of wholesale real estate investing, though, is also the fact that each deal is a one time income generating transaction. There is no long term residual income to be expected from it. The wholesaler will have to repeat the process again and again to be able to produce income. This is why wholesale real estate investing is often used by investors only to earn enough to invest in enough rentals to produce long term wealth.

Despite the disadvantages of wholesale real estate investing, it has enough advantages to make it a powerful income generating tool. It is worthwhile to learn everything there is to know about the procedures and best practices of this real estate investing strategy to add to anyone’s arsenal.

The Different Requirements Of Getting A No-Income Verification Loan

A no-income verification loan’s approval depends on the creditworthiness of the borrower along with the value of the property. The lenders know that you, the borrower, cannot qualify for securing a traditional mortgage; however, they know it very well that you certainly have the ability to pay the interest on a note, which will bring them money. Because of this ability of yours, these moneylenders are able to provide you this specific loan.

And these lenders even know that if the loan is still due after one or two years, you will either replace it with a traditional mortgage (from a bank) or renew it. However, what will happen if you have a negative income, or a higher Debt-To-Income (DTI) ratio (because of some new additions in your investment portfolio), or excessive write-offs? Do not worry as despite such scenarios, you can get such financing options easily.

Getting the no-income verification mortgages

Also known as stated income loans, these financial products are the best alternative when an investor has a negative income, or has excessive write-offs, or has spiraling DTI ratios. For securing such mortgages, you will never have to furnish all those previous year’s bank statements and income tax returns.

The requirements

  • As long as you have a good credit history (600 FICO is the minimum requirement), you can get no-income loans easily (close to $ 2 million).
  • Apart from this, you will have to give up to 25 percent to 30 percent of purchase down payment.
  • The interest on this mortgage varies from one lender to another. This oscillation will completely depend on the number of docs you provide to the lender. (If you are furnishing all the docs that the lender may require giving you this specific mortgage, then the lender may even levy a low interest rate on the loan.)

The advantages of getting such loans

  • The process of getting your no-income verification loan approved is way faster than that of the traditional loan. In conventional loans, the key reason for the delay in loan funding is, many a time, related to the income verification.
  • This financial product implies that there is completely no need to display years of statements, to show tax returns, and to provide months of paystubs.
  • If you can afford giving monthly payments and 25-30 percent of down payment, getting this financial product will be your best chance to shape your commercial real estate investment dreams.

So once you are looking for a no income verification mortgage, it is best to know the information shared in this write-up. With this knowledge, you will be able to discuss your case more clearly with the representative of the institution that will lend you this mortgage type easily.

Zoning 101 – Understanding Buncombe County Zoning and Real Estate in Asheville, North Carolina

Zoning can be a confusing issue regardless of where you own real estate, whether it’s a large city like Charlotte (NC), a small city like Asheville (NC) or a rural area like Buncombe County Western North Carolina. Zoning is a tool used to designate individual areas of land for specific purposes. When used correctly zoning can help fast developing cities and counties create a smart growth plan. This is one of the reasons Buncombe County commissioners are implementing new zoning in the metropolitan region surrounding Asheville, North Carolina.

The new zoning, adopted in May of 2007, impacts property owners throughout Buncombe County, as well as future homebuyers, sellers and real estate investors. A clear understanding of the zoning ordinances and restrictions is essential if you are going own real estate. It affects the value of your home and the choices you can make when selling or building on your property. This applies to residential real estate as well as commercial property owners.

Zoning Rules for Real Estate in Asheville, NC: The Importance of Community Accountability

In a video entitled “Will Zoning Affect You?” on the Buncombe County web site, [http://www.buncombecounty.org/governing/depts/Planning/landUse.htm], Assistant County Manager Jon Creighton explains the county’s motivation for implementing new zoning in the spring of 2007 and describes the proposed zoning changes. He also confirms that concerns about the increasing number of county residents, real estate developers and homes being built on the tops and sides of mountains have compelled Buncombe County and city of Asheville officials to make zoning a priority.

Creighton begins by defining an Open Use zoning designation. Open Use, or OU, is zoning usually found in rural areas. Land considered available for Open Use means property can be purchased and sold for a wide variety of residential and commercial purposes with the exception of certain restricted uses. The uses restricted on Open Use land include incinerators, concrete plants, landfills, asphalt plants, chip mills, mining operations and motor sports facilities.

According to Creighton these types of businesses have a large impact on the community, as a whole, so any real estate investor or property owner interested in these ventures must present a project proposal at a public hearing. This allows other property and homeowners in the Asheville area to hold Western North Carolina business and real estate developers accountable for the impact they have on existing neighborhoods and residents.

How Does Zoning Affect Buyers and Sellers of Mountain Homes and Land Near Asheville, North Carolina?

The comprehensive zoning throughout Buncombe County and Asheville, NC also changed in 2007. Comprehensive zoning differs from Open Use because it separates residential and commercial areas into designations like R-1 and R-2 residential districts, employment districts, and neighborhood and commercial service districts. Buncombe County and Asheville homebuyers and sellers can find their property’s zoning designation using the county’s online GIS system. The system can be found at [http://www.buncombecounty.org/governing/depts/Planning/landUse.htm].

Property owners and real estate investors interested in changing the zoning designation of specific land can approach the Buncombe County Commissioners and Board of Adjustment. Public hearings are required if an Application for Variances or Conditional Use Permits or an Application to Amend the Buncombe County Zoning Ordinance Text or Maps are submitted. In order to obtain a building permit for any zoning district other than Open Use real estate investors and property owners must file for Certificate of Zoning Compliance. The cost associated with these applications varies.

Size Does Count! Downtown Zoning in Question on Merrimon Avenue

The most recent zoning debate taking place in Buncombe County is actually happening in downtown Asheville, NC. In an article written by Mark Barrett in the January 15, 2008 issue of the Asheville Citizen Times the Asheville City Council will explore two major zoning matters in 2008. First, the developers of the Horizons Project, which would erect nine buildings including two 10-story towers, have asked to postpone a public hearing until July in order to evaluate neighborhood opposition and economic conditions.

Barrett also writes that the Asheville City “council is scheduled to hear from city staff on zoning proposals for the 2.4-mile stretch of Merrimon between Interstate 240 and North Asheville Library near Beaver Lake.” “The city had considered creating a new zoning district for much of the property along the street that would encourage taller buildings closer to the street,” Barrett continues, “but several property owners and some residents objected.”

As Buncombe County moves forward into the future growth is inevitable, but the real effects zoning will have on real estate in Asheville, North Carolina is yet to be seen. Local homebuyers and sellers can achieve more real estate success the more they educate themselves about zoning restrictions and changes. To learn more about zoning or buying and selling real estate in Asheville, NC visit http://www.MarkGJackson.com.

Alternative Loan Options for Residential Real Estate Investment

Conventional loans are typically the hardest to obtain for real estate investors. Some lenders don’t allow income from investment properties to be counted toward total income, which can make global underwriting a problem for certain investors, especially those who already have several existing conventional, conforming real estate loans reporting on their credit. In these cases, the investor must look outside conventional funding for their investments. Two of the more popular choices for alternative financing are portfolio loans and hard money loans.

Portfolio Loans

These loans are loans made by banks which do not sell the mortgage to other investors or mortgage companies. Portfolio loans are made with the intention of keeping them on the books until the loan is paid off or comes to term. Banks which make these kinds of loans are called portfolio lenders, and are usually smaller, more community focused operations.

Advantages of Portfolio Loans

Because these banks do not deal in volume or answer to huge boards like commercial banks, portfolio lenders can do loans that commercial banks wouldn’t touch, like the following:

  • smaller multifamily properties
  • properties in dis-repair
  • properties with an unrealized after-completed value
  • pre-stabilized commercial buildings
  • single tenant operations
  • special use buildings like churches, self-storage, or manufacturing spaces
  • construction and rehab projects

Another advantage of portfolio lenders is that they get involved with their community. Portfolio lenders like to lend on property they can go out and visit. They rarely lend outside of their region. This too gives the portfolio lender the ability to push guidelines when the numbers of a deal may not be stellar, but the lender can make a visit to the property and clearly see the value in the transaction. Rarely, if ever, will a banker at a commercial bank ever visit your property, or see more of it than what she can gather from the appraisal report.

Disadvantages of Portfolio Loans

There are only three downsides to portfolio loans, and in my opinion, they are worth the trade off to receive the services mentioned above:

  • shorter loan terms
  • higher interest rates
  • conventional underwriting

A portfolio loan typically has a shorter loan term than conventional, conforming loans. The loan will feature a standard 30 year amortization, but will have a balloon payment in 10 years or less, at which time you’ll need to payoff the loan in cash or refinance it.

Portfolio loans usually carry a slightly higher than market interest rate as well, usually around one half to one full percentage point higher than what you’d see from your large mortgage banker or retail commercial chain.

While portfolio lenders will sometimes go outside of guidelines for a great property, chances are you’ll have to qualify using conventional guidelines. That means acceptable income ratios, global underwriting, high debt service coverage ratios, better than average credit, and a good personal financial statement. Failing to meet any one of those criteria will knock your loan out of consideration with most conventional lenders. Two or more will likely knock you out of running for a portfolio loan.

If you find yourself in a situation where your qualifying criteria are suffering and can’t be approved for a conventional loan or a portfolio loan you’ll likely need to visit a local hard money lender.

Hard Money and Private Money Loans

Hard money loans are asset based loans, which means they are underwritten by considering primarily the value of the asset being pledged as collateral for the loan.

Advantages of Hard Money Loans

Rarely do hard money lenders consider credit score a factor in underwriting. If these lenders do run your credit report it’s most likely to make sure the borrower is not currently in bankruptcy, and doesn’t have open judgments or foreclosures. Most times, those things may not even knock a hard money loan out of underwriting, but they may force the lender to take a closer look at the documents.

If you are purchasing property at a steep discount you may be able to finance 100% of your cost using hard money. For example, if you are purchasing a $100,000 property owned by the bank for only $45,000 you could potentially obtain that entire amount from a hard money lender making a loan at a 50% loan-to-value ratio (LTV). That is something both conventional and portfolio lenders cannot do.

While private lenders do check the income producing ability of the property, they are more concerned with the as-is value of the property, defined as the value of the subject property as the property exists at the time of loan origination. Vacant properties with no rental income are rarely approved by conventional lenders but are favorite targets for private lenders.

The speed at which a hard money loan transaction can be completed is perhaps its most attractive quality. Speed of the loan is a huge advantage for many real estate investors, especially those buying property at auction, or as short sales or bank foreclosures which have short contract fuses.Hard money loans can close in as few as 24 hours. Most take between two weeks and 30 days, and even the longer hard money time lines are still less than most conventional underwriting periods.

Disadvantages of Hard Money and Private Money Loans

Typically, a private lender will make a loan of between 50 to 70 percent of the as-is value. Some private lenders use a more conservative as-is value called the “quick sale” value or the “30 day” value, both of which could be considerably less than a standard appraised value. Using a quick sale value is a way for the private lender to make a more conservative loan, or to protect their investment with a lower effective LTV ratio. For instance, you might be in contract on a property comparable to other single family homes that sold recently for $150,000 with an average marketing time of three to four months. Some hard money lenders m lend you 50% of that purchase price, citing it as value, and giving you $75,000 toward the purchase. Other private lenders may do a BPO and ask for a quick sale value with a marketing exposure time of only 30 days. That value might be as low as $80,000 to facilitate a quick sale to an all-cash buyer. Those lenders would therefore make a loan of only $40,000 (50% of $80,000 quick sale value) for an effective LTV of only 26%. This is most often a point of contention on deals that fall out in underwriting with hard money lenders. Since a hard money loan is being made at a much lower percentage of value, there is little room for error in estimating your property’s real worth.

The other obvious disadvantage to a hard money loans is the cost. Hard money loans will almost always carry a much higher than market interest rate, origination fees, equity fees, exit fees, and sometimes even higher attorney, insurance, and title fees. While some hard money lenders allow you to finance these fees and include them in the overall loan cost, it still means you net less when the loan closes.

Weighing the Good and the Bad

As with any loan you have to weigh the good and the bad, including loan terms, interest rate, points, fees, and access to customer support. There is always a trade-off present in alternative lending. If you exhibit poor credit and have no money for down payment you can be sure the lender will charge higher interest rates and reduce terms to make up for the added risk.

When dealing with private lenders make sure to inquire about their valuation method.

Also, with hard money lenders, you should be careful in your research and background checking. While hard money loans are one of the more popular alternative financing options, they are often targets for unscrupulous third parties. Before signing any loan paperwork make sure to run all documentation by a qualified real estate attorney and/or tax professional. If you suspect fraud or predatory lending contact the state attorney general office.

How to Get the Best Rate on Your Commercial Mortgage

Commercial mortgage borrowers often ask us how lenders determine the rates that they offer on commercial mortgage loans. There are many criteria that lenders use when determining rates, but lenders will assess the relative risk of a loan when reviewing a loan application. The lower the risk, the lower the rate. The higher the risk, the higher the rate. It is important to understand what factors are important to lenders and underwriters.

– Borrower Qualifications. Lenders will analyze a borrower or guarantor’s net worth, liquidity, cash flow, credit history and real estate experience in determining overall risk. Lenders like to see borrowers with a good history owning and managing similar properties. They want to see sufficient cash reserves to cover unexpected issues that might arise and they expect to see that borrowers have a good history of paying their bills in a timely matter.

– Property location and market. Good quality properties in large metropolitan and suburban areas are considered lower risk than inferior properties and properties in small rural locations. Good properties in good locations are easier to rent in the case where tenants move out or situations where the remaining lease terms are short. For example, if a property in a poor location becomes vacant, it will require a significant amount of renovation to attract new tenants.

– Tenant mix. Multi-tenanted properties with good quality tenants and long-term leases are very desirable when financing office and retail properties. Lenders do not like vacancy, high turnover rates and properties in a constant state of flux. Lenders like to see well run properties that attract and maintain long term tenants

– Stabilized occupancy. Lenders look for properties that have enjoyed high occupancy levels with minimal disruption for the last 2 to 3 years. Properties with vacancies and fluctuating rental histories are considered higher risk. Lenders will ask for operating statements for the past 2-3 years. They expect to see steady occupancy and increasing net income. Properties that fluctuate wildly with income and expenses will generate lots of questions.

– Property Condition. Properties in good condition with little deferred maintenance are considered lower risk than properties in need of major capital improvements. Properties in poor condition will usually require that the lender set aside or escrow funds for repairs and maintenance. Properties in poor condition tend to perform worse than well maintained properties.

– Leverage. Loan-to-Value is very important in determining risk. A 50% LTV(loan to value) loan will price better than a loan at 80% LTV. If a property experiences difficulty, there is much more room for error on low leverage loans.

-Debt Coverage. This refers to the excess in net operating income over annual mortgage payments. The more excess cash flow a property produces, the lower the risk. Excess cash flow can be used to mitigate against turnover, repairs or other cash drain.

At the end of the day, lenders do not want to expose their lending institutions to undue risk. A borrower should be prepared to address all of these issues to the satisfaction of the lender at application in order to increase the chances of getting approved for a loan at the lowest rate possible.

Once you are qualified for a commercial mortgage loan, it is helpful to get an idea of your proposed monthly payment in advance. A commercial mortgage calculator is a very helpful and useful tool. Whether you are purchasing a new commercial building, or refinancing an existing commercial loan, it is helpful to know how much of a loan you can afford at today’s rates. A commercial mortgage calculator will calculate your monthly payment for you. You will be asked to enter the loan amount, number of years, and interest rate. The mortgage calculator will calculate your monthly payment.

BRIAN MALLASCH
COLDWELL BANKER COMMERCIAL