Setting The Record StraightThere is a metaphorical place in any business when the seeker of inside secrets reaches that signpost that says something like: “Beewair … Theyre bee Dragyns ahed.” Again, keep in mind I am being highly metaphorical, but I’ve been asked a number of times about a certain type of commercial real estate financing that makes me begin to suspect that someone is out there selling investment property “treasure maps” for $5.00 each! And you know just how much treasure you will find following such a map. So as a professional commercial real estate loan broker, I am here to set the record straight: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 can not 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!
Tag Archives: finance
90% Commercial Financing
90% financing in the commercial mortgage business is still very much an option. However borrowers looking to buy a facility to “house” their business will find many more options than investors.90% Commercial Loans For InvestorsIn general, straight 90% financing for investment properties simply does not exist. One year ago there were a couple of lenders that went that high, but their rates and fees were very restrictive. However, the way that borrower can structure 90% financing is have the seller hold paper. This maybe an obvious option for many but it should not be assumed that it is easy to get done.Probably 90% of banks out there will not allow any type of mortgage to sit behind their first. Why? because it creates additional risk for them 1. Seller seconds normally have a balloon which can force the borrower into foreclosure if they are not able to pay the seller off. And 2. The additional payments on the seller second will have an impact on cash flow and can send the property into uncomfortable levels for the bank.Despite these issues there are some banks that still will allow seller financing, bringing the combined loan to value to 90%. The conventional loan will rarely exceed 75% and the seller second would be at 15% loan to value. The buyer therefore would have to come up with only 10% for the equity injection.As mentioned above, one of the main constraints with structuring investment deals like this is that the deal still has to cashflow. Funding banks will look at both payments i.e. both the conventional loan and the seller financing to make sure that the property still hits the minimum Combined Debt Coverage Ratio’s which would normally be a little more conservative at a 1.25.90% Financing for Business OwnersBusiness owners have many option in buying properties with 90% financing. There are three main sources to accomplish this. The Commercial 30 Year Fixed, Five Year Fixed 7a Loan and the SBA 504 program. All three options have their own strengths and weaknesses. Rate on the 5 year fixed program are normally the lowest and there are normally NO fees to do this loan. The 30 year fixed loan’s obvious benefits is not having the worry about the rate moving.In additional all three options will allow a construction piece to be added into the loan. For example say you where buying a property but it needed $200,000 in renovation all three of these options would allow you to add this construction cost into the total loan amount.
Three Steps to the Top Finance Jobs
The current rough state of economy doesn’t mean that there will be absolutely no finance jobs. It just means that the finance jobs will be fewer, and the competition for them will be steeper. So if you are a finance professional, and happen to be looking for a finance job in these tough economic times, here are three steps, which if properly taken, can push you ahead of the pack in the competition for the few finance jobs available.1. Update Your Skill Set. Unique circumstances call for unique skills, if one is to sail through them successfully. Most professionals looking for the top finance jobs right now are equipped with skill-sets which were adequate for the better times, but which might be considered inadequate for the current circumstances. Simply put, to beat your competitors in the search for top finance jobs, you will need to have skills that they don’t have. Having a unique skill-set gives an employer a reason to consider you for a job in preference to another candidate. And this applies whether you are looking for the top finance jobs in the financial sector, the middle office finance jobs in governments and non-profit organizations or even for the more ordinary commerce and industry accounting jobs. The unique skills in question need not be anything really fancy. Having, for example, a certificate in project management (which you can earn in a couple of weeks) puts you ahead of another candidate without such a certificate, even if you have the same basic qualification. Similarly if you are looking for commerce and industry accounting jobs, you might be well advised to approach the potential employer armed with at least some basic understanding of the workings of the business or industry you are considering working in. Armed with such a basic understanding of the underlying industry or business puts you at least one step ahead of another equally qualified finance expert who lacks such understanding.2. Work on Your Resume. The presentation of your resume can make a great difference in your search for top finance jobs, and is likely to have an influence on the employer, even before they get to look at its contents. You might consider enlisting the help of a professional resume service, to help with the presentation of your resume. Remember the number of otherwise qualified candidates who get otherwise shoved out of the recruitment process simply because of poor resume presentation is huge – ensure you don’t fall for the same trap.3. Consider enlisting the help of a finance recruitment agency. In a bid to reduce the workload involved in the recruitment process, many employers are increasingly turning to recruitment agencies for their staffing needs. This is especially true for executive jobs, like the top finance jobs, whose recruitment process might involve some level of head-hunting, and which employers might feel uneasy doing themselves, preferring to delegate it to recruitment agencies instead. Many employers are also increasingly turning to these finance recruitment agencies even for jobs which don’t necessarily involve head-hunting, like commerce and industry accounting jobs and other middle office finance jobs. This means that anyone looking for any sort of finance job is best advised to at least deposit their resume with the one of the major finance recruitment agencies. These finance recruitment agencies usually charge very nominal fees for their services, and the services they provide are very often worth what they charge.