Nov 1, 2009
Commercial Real Estate Financing Basics
Applying for commercial real estate financing is a big step. It’s not easy to get commercial property loans, especially if you are a first-time borrower. Before you apply, there are some things you should think about in order to be fully prepared.
Commercial real estate financing is different from residential real estate in a big way, according to the lender. With residential real estate, they are looking at how much the property is worth, and not overly concerned with how much it will make in the future. Residential property generally appreciates over time. With commercial real estate, however, they’ll be looking at future profits.
This means that they will be concerned less with the current worth, and more with the possible worth. As a result of this, they will be very concerned with what sort of profits the venture will generate. This is why it is very important for you to sit down and do the math. How much do you think it will make?
This means also that you should be clear on how you will use the property. What kind of business will this be? Is it going to be all for one business, or are you going to rent out units? These will be major considerations for the lender, so make sure you have a detailed plan all set out.
The actual geography of the property will also be a factor in determining whether you get your loan or not. Look at the location of the property and how that will effect the business. You will have more trouble getting financing for a place located way out in the sticks than a place on a highway off-ramp.
The size and type of the property will also be factors. You will want to look at the history of the place and make sure there aren’t any minor details that might cause trouble, like environmental problems.
Risk is the most important consideration to lenders. They will be looking at the future of the venture and, in particular, at possible things that could go wrong with the business.
A big part of this is the condition of the overall market. You can save yourself trouble later with your commercial real estate financing by studying the market and understanding its current trends. This is what your potential lender will be looking at, so it’s good for you to understand it as well. If the future is uncertain for the type of property you are trying to buy, they may be worried about making back the loan.
Before the deal closes, they will send you a “commitment letter.” This is a notification from the lender letting you know officially that you have been approved. More importantly for the lender, the commitment letter will have the terms and conditions of the loan. In other words, these are the rules.
It will tell you details about the closing conditions, rules for what you can and can’t do with the property, as well as a summary of all the terms you agreed on, making it official. Take a good look at this and make sure that it will not prohibit you from doing the things you intended when you requested the financing.
Finding commercial real estate financing is a long and drawn-out process, but if you can consider a few things before you apply, you can save yourself the headache of dealing with something unexpected later.
Watch the video related to real estate financing
An interview with expert Debbie Huber, SRA appraiser from Las Vegas. A discussion of how the current real estate market is effecting appraisals and visa versa. A fast moving discussion with JC Melvin of RealEstateLive.TV. They also speak of the real estate agent and the BPOs lenders are requesting.
Help answer the question about real estate financing
Where should I pursue my career in real estate?
I am graduating from college in about a year. My degree is in Real estate finance. I want to just start off working as a real estate agent, then eventually get my brokers license and start my own business. I live right outside of Birmingham, AL and I want to move away, but I don’t want to be so far to where it’s hard for me to come home and visit my parents. I want to move where real estate is hot and will be for years to come. I was thinking about the Destin, FL area? Anyone have any suggestions of thier own?
I am unsure if I want to do commercial or residential
About Author
Getting a lender to approve your commercial real estate financing can be a difficult process at best. It helps if you are prepared for the questions they will ask and if you know exactly what your business plan is. KISCL can offer you materials to make this task easier. http://www.kiscl.com
I also had poor credit, but bought my first home last year. I went through a broker, instead of just getting a real estate agent. He was able to find a bank that would give me a "statement loan". That is where I had the money, just not the credit. They used my bank statements from the past year and seen that I had enough money to make house payments, and I was even able to get first time home buyer program, 0 money down, and the sellers paid the closing costs. There are ways, but my best way was to go through a Broker, who was able to help me tremendously!
Credit is a load of crap!!! It should be done away with. It’s part of an ungodly, satanic system to destroy people’s lives and ruin them. We need sound money as mandated by the Bible and the Constitution.
first off, never buy a home that you cannot afford… your payments will go up every year due to taxes , for instance me and my husband bought a house at $101,000. our payments when we first moved in, with escrow included and a 6% intrest rate… were $701… now, only after living here 3 years, our payments are $968, and we recieved a letter saying that starting this coming july.. we are getting another increase…. and we do not have any fluctuating rates or antyhing… just all do to taxes… so… just be careful. always go for a home that you know you can well afford, because as the years go on, it wil increase by hundreds… but good luck anyways… try going to a bank for financing and see where they stand with you, because they are the hardest to try and get loans from.. but good luck.