Setting the Record Straight
There is a metaphorical place in any business secrets in the search when reaching a signpost that says something like: ?. Beewair ? theyre the bees Dragyns ahed? Once again, keep in mind I was very metaphorical, but I?ve been asked several times about some kind of financing commercial real estate that made me begin to suspect that someone out there selling a property investment ?treasure map? for $ 5.00 each! And you know how many treasures you?ll find such a map to follow. So as a real professional commercial loan broker real, I am here to straighten out:
NO LENDER offers a 100% Loan to Value commercial real estate loan.
And I define ?lender? to mean a source of capital that provides debt financing, secured by real property.
So for all of you seeking that 20% Seller Carry and the 80% purchase money loan on a property you think is worth three times the purchase price ? please, join us back here in reality. If pigs had wings, they would fly. So, if a lender was willing to allow you to purchase a property on those terms, why would they need you? They would make a whole lot more money doing the transaction themselves!
Here is the reality concerning commercial real estate from a lender?s perspective: Commercial real estate is considered an investment, not a basic need, such as a roof over your head. Because investment real estate is ?secondary? to a borrower?s personal residence, it is usually considered a higher risk loan.
Why?
If the fit hits the Shan in a borrower?s personal life and money becomes tight, lender?s conventional wisdom says that the borrower will shift his resources to protect his personal residence ahead of his commercial investments. This may not seem immediately apparent when you look at the spread between home loan rates and Wall Street conduit rates (these commercial rates are actually lower than most residential ones). However, you need to check the terms to see the difference.
You can still by a primary residence with no money down and good credit. You cannot purchase a commercial property without some form of equity investment. In most cases, the commercial lender wants to see a minimum of 15% equity in the deal, although you can find some that will allow 10% provided the property meets minimum debt service requirements. But good luck finding that situation in most good markets. Oh, and very few commercial loans go full term like residential loans (yes, I know that there are exceptions). Most are balloons at 10 years.
Yes, you can engage a mezzanine lender to fund almost all of the equity difference, but you are really going to pay for it either in points and rate or in some form of equity kicker ? which takes us away from my definition of lender. And mezzanine lenders don?t make loans on the property itself ? which is a whole other story.
Thus, it bears repeating: There are no 100% LTV commercial loan programs! Commercial real estate is for serious investors with equity to risk, a positive net worth, and an asset that a lender would feel comfortable encumbering. So the next time someone approaches you with a map to a pot of commercial real estate loan ?gold? ? save your money for a latte at Starbucks!
Source: http://www.worldpeace-jp.org/commercial-real-estate-loan-myths-debunked.html
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