A national commercial mortgage broker, Commercial Finance Advisors, publishes the second edition of their commercial mortgage training book. The book focuses on sales, marketing, underwriting and most importantly, prescreening commercial loan requests.
“Being an expert at pre-screening deals is critical to your success as a broker.” President, Jeff Rauth of Commercial Finance Advisors says. “Approximately fifty percent of all commercial real estate loan requests are simply not doable, maybe 70% in this market. Aspiring commercial brokers that work on these deals will waste weeks or even months on loans that have zero change of closing. You need to be able to look at a deal and figure out in the beginning if its doable and if you want to work on it or pass. We discuss this in depth.”
The book offers a unique perspective from the “front lines” of the commercial mortgage broker’s point of view. Again topics include such as sales, marketing, underwriting and pre screening deals.
Commercial Finance Advisors is a national commercial mortgage broker that focuses on commercial loans from $400,000 to $5,000,000. They also have an online store where they sell fee agreements, training materials and dvds, etc.
Saturday, October 25, 2008
Thursday, October 23, 2008
Commercial Mortgage Refinancing
There are many pitfalls that can eliminate or create problems on a commercial mortgage refinance. Whether or not your particular situation will qualify, depends on several factors. Understanding your potential loans strengths and weaknesses will save you time and ensure your best chance of a successful commercial refinance. Below are some basic questions and concepts to keep in mind regarding your commercial mortgage refinance.
Commercial Mortgage Refinancing - Ownership
First, how long have you owned the subject property? Has it been less than 12 months? The lender will use the purchase price plus any documentable improvements you’ve put into the property – not the appraised value. Many borrowers are often surprised by this, and this rule is getting more and more prevalent as the credit crisis continues. It’s often referred to as a seasoning issue. For example, if you bought the subject property 9 months ago, and put down 20%, you will not have sufficent equity, even if you’re convinced you “stole” the property. The banks will look at your loan request at 80% and most will only consider commercial mortgage loans refinances at 75% loan to value or less.
Commercial Mortgage Refinance – Value
Related to above, value or more specifically to commercial mortgage refinancing, loan to value is becoming more and more important. Obviously most banks have increased their loan to value standards. For example most banks wouldn’t go beyond 80% -75% on a commercial mortgage refinance a year ago. Now 65% - 75% is the norm. For example if you purchased a property 5 years ago with 85% financing and now you can only get 70% financing on your commercial refinance AND the value has decreased, you’ve got a problem.
In addition, the problem is dynamic in that commercial real estate values are tied to financing.
For example the debt coverage ratio (which is a measure of the properties/business cash flow) has a direct impact on the level of debt that can be placed on the property. Most buyers for example (on a purchase) are only interested in putting 20 -25% cash into a property as their down payment. If they have to put more into the deal, just so the property cash flows, many buyers will just come to the conclusion the property is overpriced. So the seller will have to drop the price in order for buyers to be interested and in order to get financing.
If the current owner has a 30 year amortization schedule, and the buyer can only find 20 year financing, there will be a cash flow issue and the only way to overcome this is by 1. The buyer brings in a higher down payment or 2. The seller reduces the price. This sale will be registered with appraisal companies and have an impact on the general commercial real estate values in the properties city.
Commercial Mortgage Refinance, Current terms
What are your current mortgage terms? Are you refinancing because you want a lower rate? Longer amortization and or fixed period? Want to pull cash out? Or do you have a ballooning loan? One of the biggest questions to ask yourself is, “what are my prepayment penalty?” This clause can kill your deal.
Prepayments come in a couple of different forms. Some are fixed or declining but all are tied by a percentage to the existing loan balance for a certain amount of years. For example a 5% flat, 5 year prepayment is common. Another example is a 5% declining. Meaning 5% in the first year, 4% in the second years… down to zero.
Lockouts are another issue. They are a form of prepayment penalties but are normally harsher.
For example on a 3 year lock out you would owe the lender 3 years worth of interest if you were to sell/refinance the property. Which often, adds up to hundreds of thousands of dollars or more depending on the loan amount.
Commercial Mortgage Refinancing, Property Charteristic
What type of commercial property are you refinancing? Different building types get of vastly different terms. 75% loan to value on a restaurant refinance will not fund, while a 75% loan top value on an office building will.
If your business occupies some of the space, what percentage? Is it more than 25%? Is it more than 50%? Many lenders will consider it an owner occupied deal if you’re in more than 25%. Virtually all lenders consider it owner occupied if your business occupies more than 51% of the subject building, which will often give you better terms.
Despite the credit crisis commercial mortgage refinancing is still viable. Take your time and work with experienced professional to make sure you get the best terms available.
Have you checked out our STORE for commercial mortgage brokers
Commercial Mortgage Refinancing - Ownership
First, how long have you owned the subject property? Has it been less than 12 months? The lender will use the purchase price plus any documentable improvements you’ve put into the property – not the appraised value. Many borrowers are often surprised by this, and this rule is getting more and more prevalent as the credit crisis continues. It’s often referred to as a seasoning issue. For example, if you bought the subject property 9 months ago, and put down 20%, you will not have sufficent equity, even if you’re convinced you “stole” the property. The banks will look at your loan request at 80% and most will only consider commercial mortgage loans refinances at 75% loan to value or less.
Commercial Mortgage Refinance – Value
Related to above, value or more specifically to commercial mortgage refinancing, loan to value is becoming more and more important. Obviously most banks have increased their loan to value standards. For example most banks wouldn’t go beyond 80% -75% on a commercial mortgage refinance a year ago. Now 65% - 75% is the norm. For example if you purchased a property 5 years ago with 85% financing and now you can only get 70% financing on your commercial refinance AND the value has decreased, you’ve got a problem.
In addition, the problem is dynamic in that commercial real estate values are tied to financing.
For example the debt coverage ratio (which is a measure of the properties/business cash flow) has a direct impact on the level of debt that can be placed on the property. Most buyers for example (on a purchase) are only interested in putting 20 -25% cash into a property as their down payment. If they have to put more into the deal, just so the property cash flows, many buyers will just come to the conclusion the property is overpriced. So the seller will have to drop the price in order for buyers to be interested and in order to get financing.
If the current owner has a 30 year amortization schedule, and the buyer can only find 20 year financing, there will be a cash flow issue and the only way to overcome this is by 1. The buyer brings in a higher down payment or 2. The seller reduces the price. This sale will be registered with appraisal companies and have an impact on the general commercial real estate values in the properties city.
Commercial Mortgage Refinance, Current terms
What are your current mortgage terms? Are you refinancing because you want a lower rate? Longer amortization and or fixed period? Want to pull cash out? Or do you have a ballooning loan? One of the biggest questions to ask yourself is, “what are my prepayment penalty?” This clause can kill your deal.
Prepayments come in a couple of different forms. Some are fixed or declining but all are tied by a percentage to the existing loan balance for a certain amount of years. For example a 5% flat, 5 year prepayment is common. Another example is a 5% declining. Meaning 5% in the first year, 4% in the second years… down to zero.
Lockouts are another issue. They are a form of prepayment penalties but are normally harsher.
For example on a 3 year lock out you would owe the lender 3 years worth of interest if you were to sell/refinance the property. Which often, adds up to hundreds of thousands of dollars or more depending on the loan amount.
Commercial Mortgage Refinancing, Property Charteristic
What type of commercial property are you refinancing? Different building types get of vastly different terms. 75% loan to value on a restaurant refinance will not fund, while a 75% loan top value on an office building will.
If your business occupies some of the space, what percentage? Is it more than 25%? Is it more than 50%? Many lenders will consider it an owner occupied deal if you’re in more than 25%. Virtually all lenders consider it owner occupied if your business occupies more than 51% of the subject building, which will often give you better terms.
Despite the credit crisis commercial mortgage refinancing is still viable. Take your time and work with experienced professional to make sure you get the best terms available.
Have you checked out our STORE for commercial mortgage brokers
Friday, October 10, 2008
Survival Tactic - Commercial Hard Money
Commercial hard money loans should only be thought of as an option after you have exhausted all other sources and have come to the conclusion that you just won’t qualify for a conventional commercial real estate loan. The choice, though hard for many borrowers, is normally simple. Either lose your business or building or accept the terms offered by the hard money lender.
It’s a survival tactic. You’re giving yourself something very valuable in exchange for the expense of the loan – time. Time to repair, time to restore whatever the issues are. Whether it’s getting the business back to profitability, paying down debt, time to continue leasing out the property, restore personal credit, etc. We see so many borrowers let the egos get in the way and end up turning this into something it’s not.
What it really is is an act of courage that you are facing the problems head on and doing everything you can to solve it. And no matter how bad it is, you can still have some pride in that. Many people simple hide and let the problems overwhelm them.
Remember the old saying of comparing apples to apples. You just cannot compare a hard money loan to a bank loan you may have been eligible for 3 years ago. You have to be realistic and compare it to your current alternatives. And here’s what they are 1. Take on a partner 2. Lose the business 3. lose the building.
Say you have a building worth $2,000,000 and owe $500,000. You have $1,500,000 of equity you stand to lose vs. paying for an expensive loan. Or say you take on the wrong partner because you are pressed for time and need cash. Now you stand to lose whatever equity you have in the business, building and have additional legal issues by having to get rid of the partner. And even if it works out with the partner you will likely have to give up much more to the partner than pay in fees to the lender.
Most hard money lenders charge 6% on the front of the loan, which is obviously very expensive. Say, using the numbers above you wanted an additional $500,000 to bring the total loan balance to $1,000,000. You would pay $60,000 in fees… Versus losing $1,500,000. It’s hard, but simple. Don’t let your ego get in the way of this one. Face the problem head on, and fix it.
Jeff Rauth is President of Commercial Finance Advisors, Inc out of Birmingham, Michigan a national commercial mortgage brokerage firm. He also has a STORE for commercial loan brokers. Contracts, spreadsheets, books, etc. Products starting at $5.
It’s a survival tactic. You’re giving yourself something very valuable in exchange for the expense of the loan – time. Time to repair, time to restore whatever the issues are. Whether it’s getting the business back to profitability, paying down debt, time to continue leasing out the property, restore personal credit, etc. We see so many borrowers let the egos get in the way and end up turning this into something it’s not.
What it really is is an act of courage that you are facing the problems head on and doing everything you can to solve it. And no matter how bad it is, you can still have some pride in that. Many people simple hide and let the problems overwhelm them.
Remember the old saying of comparing apples to apples. You just cannot compare a hard money loan to a bank loan you may have been eligible for 3 years ago. You have to be realistic and compare it to your current alternatives. And here’s what they are 1. Take on a partner 2. Lose the business 3. lose the building.
Say you have a building worth $2,000,000 and owe $500,000. You have $1,500,000 of equity you stand to lose vs. paying for an expensive loan. Or say you take on the wrong partner because you are pressed for time and need cash. Now you stand to lose whatever equity you have in the business, building and have additional legal issues by having to get rid of the partner. And even if it works out with the partner you will likely have to give up much more to the partner than pay in fees to the lender.
Most hard money lenders charge 6% on the front of the loan, which is obviously very expensive. Say, using the numbers above you wanted an additional $500,000 to bring the total loan balance to $1,000,000. You would pay $60,000 in fees… Versus losing $1,500,000. It’s hard, but simple. Don’t let your ego get in the way of this one. Face the problem head on, and fix it.
Jeff Rauth is President of Commercial Finance Advisors, Inc out of Birmingham, Michigan a national commercial mortgage brokerage firm. He also has a STORE for commercial loan brokers. Contracts, spreadsheets, books, etc. Products starting at $5.
Wednesday, October 8, 2008
Commercial Hard Money – Hay Day
Commercial hard money is in its “hay day” at the moment. As conventional sources continue to tighten their underwriting guidelines commercial hard money is, for the most part flourishing. Never before have private money lenders been in such a strong position to “cherry pick” deals. In fact, many commercial hard money lenders are raising their underwriting criteria to the point that they match previous conventional guidelines.
Many commercial loan requests that fit the conventional underwriting box 6 months ago, now find that there only viable option is hard money. Borrowers are often shocked and or angry at the terms offered. Interests in the teens with 3-6% points are market. You can’t blame the borrower for being outraged. It just seems ridiculous.
But the reality for many borrowers that have already exhausted all other options, face either losing their property, losing their business (or both) or have to take on a partner. All of these alternatives are more expensive, often much more expensive, than a commercial hard money loan. For example if you have a building worth $2,000,000 with an existing $500,000 loan and are requesting a $1,000,000 loan amount, you’ll pay out $30,000 – to $60,000 in fees vs. losing $1,500,000 in equity. It’s that simple.
Taking on a partner is often thought of as a viable alternative. However, there are many challenges with this strategy as well. First of all you have to find a partner... that has cash and that will blend with the company and your business goals. How much control and ownership of the property and business will you have to give up? The math is as simple as the above example. Give up 50% or pay 6% in fees…
Nobody likes the terms offered. Hard money lenders have much at stake as well and stand to lose millions on one bad deal. Taking borrowers through foreclosure is no cake wake and is very expensive for the lenders, which is a very likely outcome that they often face. Commercial Hard money will likely remain in a very strong position for as long as our credit crisis continues.
Jeff Rauth is President of Commercial Finance Advisors, Inc out of Birmingham, Michigan. He has a STORE for commercial loan brokers. Contracts, spreadsheets, books, etc. Products starting at $4.95! Check it out
Many commercial loan requests that fit the conventional underwriting box 6 months ago, now find that there only viable option is hard money. Borrowers are often shocked and or angry at the terms offered. Interests in the teens with 3-6% points are market. You can’t blame the borrower for being outraged. It just seems ridiculous.
But the reality for many borrowers that have already exhausted all other options, face either losing their property, losing their business (or both) or have to take on a partner. All of these alternatives are more expensive, often much more expensive, than a commercial hard money loan. For example if you have a building worth $2,000,000 with an existing $500,000 loan and are requesting a $1,000,000 loan amount, you’ll pay out $30,000 – to $60,000 in fees vs. losing $1,500,000 in equity. It’s that simple.
Taking on a partner is often thought of as a viable alternative. However, there are many challenges with this strategy as well. First of all you have to find a partner... that has cash and that will blend with the company and your business goals. How much control and ownership of the property and business will you have to give up? The math is as simple as the above example. Give up 50% or pay 6% in fees…
Nobody likes the terms offered. Hard money lenders have much at stake as well and stand to lose millions on one bad deal. Taking borrowers through foreclosure is no cake wake and is very expensive for the lenders, which is a very likely outcome that they often face. Commercial Hard money will likely remain in a very strong position for as long as our credit crisis continues.
Jeff Rauth is President of Commercial Finance Advisors, Inc out of Birmingham, Michigan. He has a STORE for commercial loan brokers. Contracts, spreadsheets, books, etc. Products starting at $4.95! Check it out
Friday, October 3, 2008
Commercial Mortgages – Ignore Your Way Through It
If you’re a commercial mortgage originator like myself, my unsolicited advice to you is to ignore your way through this giant heaping mess. “Ignore your way through it”, it’s my new slogan. Perhaps I’ll make a bumper sticker.
As the Politician’s continue to do what they do best, cover their own ass to protect their jobs, we have to continue on. To me it’s comical that no one has the courage to remind the politicians or the people that they pushed the fair housing acts, and other government sponsored program that promoted high leverage to begin with. The SBA programs are another example.
What about all this talk of the “greedy, evil and corrupt” lenders that pushed stated income loans and the like on the poor innocent borrowers. Give me a break, like the borrowers are little lambs that are complete victims. I’ve been in this business for 10 years and have seen it all, including many borrowers that have attempted to commit fraud under my license. Most borrowers know exactly what they are doing! Many of these borrowers where not “mortgagable” and should be grateful they had a shot at home ownership.
There are many people out there that lost their jobs or have had serious medical issues and the like; I’m not referring to these people. I’m talking about the masses of borrower’s that defaulted, simply because they borrowed more than they could afford. Or because they went underwater.
Guess what? If you took on a loan you couldn’t afford in the first place, than you screwed up. You’re responsible for it! If you make $50,000 a year and took on a $400,000 mortgage just because you could get a loan, you are 100% responsible for that mistake. And now we as a country are paying for it. And we don’t want to pay for it.
We are a nation that has been living on borrowed time and borrowed money and now we’re paying for it. The idea of living within our means is on the comeback. I’m confident that had the banks been left alone, they’d still be doing 80% financing max and this issue would not exist.
As the Politician’s continue to do what they do best, cover their own ass to protect their jobs, we have to continue on. To me it’s comical that no one has the courage to remind the politicians or the people that they pushed the fair housing acts, and other government sponsored program that promoted high leverage to begin with. The SBA programs are another example.
What about all this talk of the “greedy, evil and corrupt” lenders that pushed stated income loans and the like on the poor innocent borrowers. Give me a break, like the borrowers are little lambs that are complete victims. I’ve been in this business for 10 years and have seen it all, including many borrowers that have attempted to commit fraud under my license. Most borrowers know exactly what they are doing! Many of these borrowers where not “mortgagable” and should be grateful they had a shot at home ownership.
There are many people out there that lost their jobs or have had serious medical issues and the like; I’m not referring to these people. I’m talking about the masses of borrower’s that defaulted, simply because they borrowed more than they could afford. Or because they went underwater.
Guess what? If you took on a loan you couldn’t afford in the first place, than you screwed up. You’re responsible for it! If you make $50,000 a year and took on a $400,000 mortgage just because you could get a loan, you are 100% responsible for that mistake. And now we as a country are paying for it. And we don’t want to pay for it.
We are a nation that has been living on borrowed time and borrowed money and now we’re paying for it. The idea of living within our means is on the comeback. I’m confident that had the banks been left alone, they’d still be doing 80% financing max and this issue would not exist.
Gas Station Loans Have Gotten the Worst of It
Many businessmen that are looking to either refinance their gas station loan or purchase a new facility are now facing serious challenges with securing capital. And similar to the bride that leaves you at the altar, the SBA has all but pulled out of this sector that prior too was the back bone loan to the industry. At the end of the day you could normally rely on the SBA loans to get something done.
Now this isn’t to say that the SBA has pulled out completely, they’ve just made it so cumbersome and expensive on the front end for the borrower that, for many it’s just not worth it. Take for example, that all deals have to have a full phase two completed, no matter the age.
Say the property is a 2 years old, with state of the art tanks and equipment it doesn’t matter. They want a full phase 2 which runs the borrower at least $10,000. If any issues (or hints of issues) are discovered, the costs can easily exceed $100,000 for clean up, legal fees, consulting fees, etc.
Local and regional banks normally either have an appetite for this industry or not. Due to the complexity of the deals, banks just don’t dabble in this sector. What we’re seeing is that many established players have or are pulling out of gas station funding. They’re shifting their focus to more general properties like office, retail etc, or just waiting to see what happens with Wall Street before they throw any more cash around.
Where’s the happy ending in the commercial mortgage industry? There are still a few portfolio lenders (and SBA lenders) that have an established niche and continue on. Borrowers should be spending their time trying to figure out if the bank they are working with is really going to fund their deal, rather than trying to save a few basis points on rates. The question isn’t what’s your rates, its are your going to waste 3 months of my time and $10,000?
Put your detective hat on and dig deep. Figure out if the bank in questions is really serious about the project. Question like “how many gas station loans have you closed year to date? What is your personal outlook on the stability of the bank? What’s the banks history with gas stations loans?” Remember that the bank representative has quotas like, filled out application per week, phone calls per day, meeting per week, etc. So even if the bank loan officer doesn’t really think he can get it done he may waste your time, to protect his job.
Click here to see current commercial loan rates
Now this isn’t to say that the SBA has pulled out completely, they’ve just made it so cumbersome and expensive on the front end for the borrower that, for many it’s just not worth it. Take for example, that all deals have to have a full phase two completed, no matter the age.
Say the property is a 2 years old, with state of the art tanks and equipment it doesn’t matter. They want a full phase 2 which runs the borrower at least $10,000. If any issues (or hints of issues) are discovered, the costs can easily exceed $100,000 for clean up, legal fees, consulting fees, etc.
Local and regional banks normally either have an appetite for this industry or not. Due to the complexity of the deals, banks just don’t dabble in this sector. What we’re seeing is that many established players have or are pulling out of gas station funding. They’re shifting their focus to more general properties like office, retail etc, or just waiting to see what happens with Wall Street before they throw any more cash around.
Where’s the happy ending in the commercial mortgage industry? There are still a few portfolio lenders (and SBA lenders) that have an established niche and continue on. Borrowers should be spending their time trying to figure out if the bank they are working with is really going to fund their deal, rather than trying to save a few basis points on rates. The question isn’t what’s your rates, its are your going to waste 3 months of my time and $10,000?
Put your detective hat on and dig deep. Figure out if the bank in questions is really serious about the project. Question like “how many gas station loans have you closed year to date? What is your personal outlook on the stability of the bank? What’s the banks history with gas stations loans?” Remember that the bank representative has quotas like, filled out application per week, phone calls per day, meeting per week, etc. So even if the bank loan officer doesn’t really think he can get it done he may waste your time, to protect his job.
Click here to see current commercial loan rates
Wednesday, October 1, 2008
Triple Net Deals, Financing Options
The overall credit constraints have restricted all commercial mortgages and triple net financing is no exception. More important know than ever is the strength of the tenant(s), global income, post close liquidity and other traditional underwriting criteria that I’ll discuss here.
“Post close liquidity” seems to be the new buzz word of the day (sounds pretty slick, right?). But what the lender wants to know is, after the buyer purchases the property and injects 30% - 40% cash into the deal, how much cash will he have left over? Is he throwing everything he’s got into the deal? Many banks now want to see between 4 -6 months of reserves. Meaning, 4 to 6 months of cash, that could be used to pay the mortgage if the tenant defaulted on the lease. Of course the level of this restraint is tied directly to the strength of the tenant.
“Who’s the tenant? Are we talking a regional player with 25 locations or a public company? What are their trends? Are gross revenues over the last 3 years declining, stable or increasing? How are the trends of the net income? Again stable, declining, or increasing? The funding bank will want to see three years of business returns and year to tax financials at a minimum. These questions are just the beginning. The tenant is in a way, the real borrower and will be underwritten accordingly.
Loan to values have been one of the more obvious restrictions. A year ago we were closing fast food restaurants (like KFC, Arby's, Taco Bell's) at 75% loan to value. Now we’re seeing 65% max, with most lenders at 60%. Couple this with declining cap rates in many markets and we’ve got a bit of a problem.
Debt coverage ratios have also been bumped from a 1.2 to a 1.3 by most sources. Perhaps a little more sneaky, is that many banks have also bumped up underwriting vacancy and management percentages which further reduces the NOI. Traditional banks would use 2-3% for vacancy (even if there isn’t any) and 2-3% for management (even if the borrower manages the property himself). These percentages in many cases have been risen to 3 -5% on both.
Global income is more and more looked at. Many sources didn’t really look that hard at the borrower’s personal financial situation. Now personal debt/expenses and other sources of income beside the property are examined. Overall, what’s the level of cash flow that the borrower has?
NNN Loans are still doable! They are still closing, but as discussed, having a 20 year nnn lease in place is just the starting point. Banks will want to scrutinize all aspects of the deal so they can be more confident of the risks involved. Be prepared and have your package ready to go and clean up all issues (like your credit score) before you submit your file to a bank.
“Post close liquidity” seems to be the new buzz word of the day (sounds pretty slick, right?). But what the lender wants to know is, after the buyer purchases the property and injects 30% - 40% cash into the deal, how much cash will he have left over? Is he throwing everything he’s got into the deal? Many banks now want to see between 4 -6 months of reserves. Meaning, 4 to 6 months of cash, that could be used to pay the mortgage if the tenant defaulted on the lease. Of course the level of this restraint is tied directly to the strength of the tenant.
“Who’s the tenant? Are we talking a regional player with 25 locations or a public company? What are their trends? Are gross revenues over the last 3 years declining, stable or increasing? How are the trends of the net income? Again stable, declining, or increasing? The funding bank will want to see three years of business returns and year to tax financials at a minimum. These questions are just the beginning. The tenant is in a way, the real borrower and will be underwritten accordingly.
Loan to values have been one of the more obvious restrictions. A year ago we were closing fast food restaurants (like KFC, Arby's, Taco Bell's) at 75% loan to value. Now we’re seeing 65% max, with most lenders at 60%. Couple this with declining cap rates in many markets and we’ve got a bit of a problem.
Debt coverage ratios have also been bumped from a 1.2 to a 1.3 by most sources. Perhaps a little more sneaky, is that many banks have also bumped up underwriting vacancy and management percentages which further reduces the NOI. Traditional banks would use 2-3% for vacancy (even if there isn’t any) and 2-3% for management (even if the borrower manages the property himself). These percentages in many cases have been risen to 3 -5% on both.
Global income is more and more looked at. Many sources didn’t really look that hard at the borrower’s personal financial situation. Now personal debt/expenses and other sources of income beside the property are examined. Overall, what’s the level of cash flow that the borrower has?
NNN Loans are still doable! They are still closing, but as discussed, having a 20 year nnn lease in place is just the starting point. Banks will want to scrutinize all aspects of the deal so they can be more confident of the risks involved. Be prepared and have your package ready to go and clean up all issues (like your credit score) before you submit your file to a bank.
Automotive Property Loans – Credit Crisis
If you own an automotive property or are thinking of buying one, such as an oil change facility, collision shop or general auto repair, you’ve got to have you’re “ducks in a row” as they say, to get the loan closed in this market.
Believe me I’m sick of hearing about the credit crisis and sick of “warning” my clients. But as the credit crisis persists, you need to start thinking "clean". In other words your loan requests have to be strong or you won’t be getting any term sheets from banks. They’ll simply pass on your deal. One of the more common issues is bad credit or mediocre credit. 6 months ago you could get away with a 620 and still have some good options. Now you really need a 680. Issues like late pays or an excessive amount of debt, even with good scores, will now kill most options.
Another common issue is so many automotive property owners don’t show enough income to qualify. The idea on a bigger scale is to avoid as much taxes as possible, but when you go to get a loan, you’ve got a problem. Whatever money you saved by not paying tax you’ll “pay back” to a lender in the form of a higher interest rate or by not getting a loan at all. Pay now or pay later. Tell to your CPA about this he may be able to help you create more noncash items like deprivation so that you can have the best of both sides – low taxes and a good rate.
Bottom line, if you want a decent loan, you’ve got to show a decent amount of income in this market. More exactly, you’ll need to hit a Debt Coverage Ratio of a 1.3, which has gone up from a 1.2 (some banks used to go down to a 1.1). What this ratio means, is that you’ll need to show $1.30 of net income, for every $1 of proposed mortgage payments. So after you pay all of your expenses and pay the mortgage you’ll still have $.30 left over…
Automotive property loans are still doable! But you’re going to have to be more serious about pulling them off. And (I’m not just trying to up sell you) you should be more concerned about if the funding bank is really going to close vs. picking one bank over the other to save 10 basis points on your commercial rate. Prepare in the beginning and have your loan package look as clean as possible BEFORE you submit it to a bank. You don’t want to have to “explain away” a single item if you can avoid it.
Believe me I’m sick of hearing about the credit crisis and sick of “warning” my clients. But as the credit crisis persists, you need to start thinking "clean". In other words your loan requests have to be strong or you won’t be getting any term sheets from banks. They’ll simply pass on your deal. One of the more common issues is bad credit or mediocre credit. 6 months ago you could get away with a 620 and still have some good options. Now you really need a 680. Issues like late pays or an excessive amount of debt, even with good scores, will now kill most options.
Another common issue is so many automotive property owners don’t show enough income to qualify. The idea on a bigger scale is to avoid as much taxes as possible, but when you go to get a loan, you’ve got a problem. Whatever money you saved by not paying tax you’ll “pay back” to a lender in the form of a higher interest rate or by not getting a loan at all. Pay now or pay later. Tell to your CPA about this he may be able to help you create more noncash items like deprivation so that you can have the best of both sides – low taxes and a good rate.
Bottom line, if you want a decent loan, you’ve got to show a decent amount of income in this market. More exactly, you’ll need to hit a Debt Coverage Ratio of a 1.3, which has gone up from a 1.2 (some banks used to go down to a 1.1). What this ratio means, is that you’ll need to show $1.30 of net income, for every $1 of proposed mortgage payments. So after you pay all of your expenses and pay the mortgage you’ll still have $.30 left over…
Automotive property loans are still doable! But you’re going to have to be more serious about pulling them off. And (I’m not just trying to up sell you) you should be more concerned about if the funding bank is really going to close vs. picking one bank over the other to save 10 basis points on your commercial rate. Prepare in the beginning and have your loan package look as clean as possible BEFORE you submit it to a bank. You don’t want to have to “explain away” a single item if you can avoid it.
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