What Investors Should Know About Commercial Real Estate Loans
I don’t usually talk about the loan process of Commercial Real Estate because, to be honest, I just don’t deal with it that often. Out of sight, out of mind type of thing…. Anyway, I am working with a client right now that is close to closing on a 20,000 Square Foot office building purchase. It is their first purchase of Commercial Real Estate, and I sometimes forget how different the loan process can be from residential. Therefore, when I got into the office this morning I wanted to make sure that I put out a blog that educated my readers on the process, and came across What Investors Should Know About Commercial Real Estate Loans on the website Data Recovery Sacramento. Below is a little excerpt of the blog post:
Your commercial real estate transaction does not close unless the loan is approved. You can also improve the cash flow if the interest rate for the loan is low. So the more you know about commercial loans the better decision you can make about your commercial real estate investment.
Loan Qualification: Most of you have applied for a residential loan. You provide to the lender with W2’s and/or tax returns. In general the more income you make the higher loan amount you qualify. You could even borrow 100% of the purchase price if your income or stated income is strong. For commercial loan, the amount of loan the lender will approve is based on the rental income of the property, not your personal income. So the more rental income the property generates, i.e. the higher the CAP rate, the higher loan to value (LTV) the lender approves. If you buy a vacant commercial building, you will have difficult time getting a loan as it does not have any rental income unless you plan to occupy it for your business.
To read the rest of the blog from Data Recovery, please click here
