Learn To Be A Fix & Flip Investor

Saturday, February 4, 2017

How Can A Bank Limit Risk In Commercial Lending?

Commercial lending involves a level risk no matter who the borrower is, but banks do have ways in which they can minimize risk.

Borrowers are always confident their idea can’t miss. They always think that their idea is the one that will make millions and that the bank would be foolish not to approve. If a borrower didn’t exude some level of confidence in their business model the bank would be foolish to approve them. If they don’t believe in it how can the bank?

But when you are in the business of commercial lending you can’t get caught up in the confidence and emotions displayed by the borrower. You have to remain detached and objective—but how?

Five C’s Of Credit Used In Commercial Lending

It is impossible to know beyond the shadow of a doubt whether someone is going to honor their loan agreement and pay it off in a timely fashion. People in the commercial lending industry just have to do the best they can when judging the level of risk that lies with approving a particular borrower.

How do they judge it? The apply the Five C’s of Credit:

- Character: Does the borrower have a track record of paying his or her bills in a timely fashion or do they have a lot of outstanding debt?

- Capacity: Will the borrower have sufficient income to pay his note every month? Are they entering a market with a lot of competition and not enough demand to go around?

- Capital: How much equity do they have in the venture? Is it enough to convince the bank they will do whatever it takes to succeed or will someone else be the big loser if the business fails?

- Collateral: an alternative source of payment for the lender should the borrower fail to abide by the terms of the loan.

- Conditions: also known as the loan structure; this will include whatever interest rate is being charged as well as any other things the lender feels are necessary in order to minimize their risk (i.e. loan-to-value ratio, debt service coverage ratio, financial covenants, the subordination of officer debt, borrowing base).

It All Starts With The Relationship for Commercial Lending

Commercial lending can be a nerve-racking business. You want to believe in people and help make their dreams come true, but at the same time, you have to be responsible to the bank's investors too. But you hate to be the one that has to crush someone’s dream. Does this mean you have to be ruthless?

Not at all! In fact, the best bet is to get to know the borrower as much as possible. Establish a relationship with the borrower, and you are more likely to “accidentally” discover red flags that they inadvertently let slip. It sounds dirty, but at the same time you can find out if they are a crazy dreamer with their head in the clouds are a practical and responsible business person.

Dennis Dahlberg Broker/RI/CEO/MLO
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial lending

Commercial Real Estate Loans—Money Down and More

Commercial Real Estate Loans require a few key things to make everything happen seamlessly. Ultimately this means having available funds to put down and having a clear business plan.

In the wonderful world of real estate, commercial real estate loans don’t always come easy. In fact, the better prepared you are for your lender the better the chances are that you will qualify for your commercial loans. Obviously, this is not groundbreaking advice –being prepared. But, it is can be very easy to forget that the devil is always in the details, especially when it comes to qualifying for commercial real estate loan.

For instance, money down or rather a down payment can open many doors in the commercial real estate world. But, of course, you can’t just bring any sum of money to the table. In fact, you actually need to hammer out a few details before you can even come up with the right figure amount for your down payment such as property type, your LTV (Loan to Value) ratio, your income-generating capacity, available collateral as well as personal guarantee, fees, terms, repayment schedule, loan type i.e. small business loan or non-small business loan and so on. The point is it takes time, extensive planning as well as a good calculator to know how much money down is right for you and your business venture.

If you are suddenly feeling a little fearful of math, it’s perfectly naturally to feel a little overwhelmed when trying to figure your future down payment. The good news is that there is help. So, put your calculator down and take a deep breath—your real estate loan is only a day away, well actually a few business days away, but nevertheless.

Money Down is your Helping Hand

Let’s go over a few key things, your LTV ratio ultimately looks at the amount of your loan in light of the appraised value of your property. Your specific lender can quickly tell you what they typically require here, but generally, most banks or lenders look for an LTV around 70-80 percent or less. So if the LTV ratio is 75 percent then the loan will cover 75 percent of the purchase price and you need to come up with 25 percent down. If your property will be an income-generating one, make sure you factor that in as well. Other things such as available collateral or personal guarantee are typically not an issue for business to come up with; thus, you need not lose any sleep over them. Clearly, fees, costs, terms will be covered in detail by your lender and will ultimately give you an idea of what additional capital you may need.

A Successful Business Plan for a Commercial Real Estate Loan

Lastly, it almost goes without saying that one way to get your foot in the commercial real estate door is to have a clear business plan that ultimately details how you are going to turn a sizable profit. In doing so, things like your personal net worth, credit score, and even available collateral will become less of a priority for your commercial real estate lender.

Happy senior business man making his notes at work Dennis Dahlberg Broker/RI/CEO/MLO
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial real estate loan,commercial real estate loans

Friday, February 3, 2017

Commercial Mortgage Basics

Interested in a commercial mortgage? If, so it never hurts to make sure you know the basics.

You might be surprised how many people consider a commercial mortgage or non-residential mortgage without truly know the basics. Sure, the right lenders and loan officer will gladly guide the way. But, nevertheless, it is still important to first-hand what you are potentially signing up for, right? Of course, it is that’s just common sense and good business. So, let’s get down to some of the basics.

For starters, just like anything else these days, there seems to be an overwhelming amount of information available for all things commercial mortgage. In fact, any standard internet search will more than likely yield you dozens of articles. But, assuming you are like most business savvy individuals you probably do not have the time to sit down and go through countless articles and that‘s perfectly okay. In all actuality, you can narrow non-residential mortgage basics down to around four major points—the purpose or use for a non-residential mortgage, where to obtain this particular mortgage, how to qualify and of course what are the terms.

Typically, the purpose or rather what you can use a non-residential mortgage for is large commercial properties like warehouses, office buildings or financing for company property improvements. You can also choose to use this particular kind of mortgage to refinance existing commercial loans. With that being said, when in the market for a non-residential mortgage your best lender options are generally banks, especially if you want to deal with the people who are originating your mortgage. Once you’ve decided on the right bank lender for you, the next thing that absolutely has to happen is finding the time to sit down with your commercial lender to go over the terms and qualification requirement in full, clear detail.

Commercial Mortgage - Where to Begin

Clearly, you should never get any mortgage without its terms and borrower requirements being fully explained. Nevertheless, it goes without saying that really no two non-residential loans will be alike. Thus, it makes sense to do the necessary research and ask the necessary questions that pertain to your business, your commercial project, and the actual property. In general, most mortgages that are used for commercial purposes have a repayment period of five to ten years with property improvement mortgages or loan needed to be repaid sooner rather than later. Lastly, no mortgage or loan comes without fees, thus, you should also make sure you are clear the closing costs and more.

Things to consider when figuring out if you Qualify for a Comercial Mortgage

Also a side note, when figuring out if you actually qualify for your business mortgage or non-residential mortgage remember lenders determine your creditworthiness based upon your business credit score, which often varies from company to company. Due to this fact, it is almost a necessity to have your business credit in order across the board because most banks see low or unfavorable business credit scores as a strong indication of your inability to make on-time payments and you never want to give off that impression when applying for a mortgage.

Technorati Tags: commercial mortgages,comercial mortgage

Things To Consider When Reviewing Commercial Real Estate Lenders

There is more to finding the right commercial real estate lenders than whether they will approve you. When considering the available commercial real estate lenders at your disposal there are several things to consider which can help you figure out the right one for you.

Going into business is a pretty big decision and one that will involve you having to make several big, important decisions along the way before you ever open up. One of the biggest, of course, is your location. The wrong one can doom you to failure before your business ever gets off the ground.

So, when choosing your location, it helps to have the right people involved in the process. But with all the commercial real estate lender available, how do you go about choosing the right one for you?

What To Consider When Reviewing Commercial Real Estate Lenders

On the surface, it may seem like deciding which lender to go with is easy—go with whoever will approve you. But if you do that, there is a very real chance you’ll get stuck having to honor terms that are advantageous to the loaner and problematic for you.

The following are several things to keep in mind when you are looking for a lender:

- You Have Options: Don’t settle for the best of the worst. There is someone out there who is right for you. You may have to do some searching to find him/her. But you are better off putting in the leg work now rather than regretting not doing so later.

- Choose the Best Loan for Your Business: Not every loan is the same so make sure you understand exactly what you think you need and what the lender is offering.

- Get Pre-Approved As Soon As Possible: The quicker you know how much you have to work with, the faster you’ll find your space.

- Work With a Lender Focused On Your Immediate Needs: It is nice that they want to protect your future, but if you never make it out of the present, the future doesn’t matter.

- It’s Smarter to Make a Smaller Down Payment: In theory, this means you end up paying back more later, but when you are getting started there will be several expenses that will come up that you did not budget for. It’s better to have the money on hand and not need it than to need it and not have it.

- Look for a Lender with an Entrepreneurial Mindset: Anyone can learn how to review loans and talk terms, but it takes someone with an entrepreneurial mindset to truly understand what you want to do and why it’s important to you.

- Do Not Choose a Lender Based on Interest Rate Alone: No one wants to have to pay the lender more money, but there are so many other terms to consider that can be vital to your success.

- Get Referrals: No one will know a lender better than someone who has worked with them before. If someone is willing to recommend them, then they can’t be too bad.

Don’t Hesitate To Ask Or To Dig

The last thing you want to do in the early stages of your business venture is not feel good about whoever you choose from the commercial real estate lenders available to you. So be sure and question them about anything you want and use whatever tools you have on hand to discover what you need to know.

Technorati Tags: commercial real estate lenders

What to Expect with a Commercial Bridge Loan

Investing in a commercial property can be an exciting time and receiving multiple commercial lender offers can be just what you need to know that you are on the right track. But, in the spirit of things, it never hurts to double check to make sure your loan offers are offering you just what you expected.

More than likely, you have applied for a commercial bridge loan or two or even three and your lender offers are slowly coming in. Generally, it is at this time the tough decisions have to be made. In other words, when you are dealing with multiple offers, you need to truly weigh your options as no two lenders are completely alike. Since no two lenders are alike, this typically means that one commercial bridge loan offer will ultimately be better for you than the next. Thus, with that being said, it is simply your job to find that special one.

So, how can you find the best commercial bridge loan for you? Well, it pretty much goes without saying that you should always make sure the commercial loan offer you are leaning towards is the right size for your property or investment. For instance, many lenders offer property specific bridge loans such as small apartment bridge loans, medium to large apartment bridge loans as well as your standard bridge loans i.e. the larger bridge loan for commercial properties such as healthcare facilities, industrial warehouses, self-storage facilities, office buildings or retail properties and of course mixed use buildings.

As you will come to quickly learn, with bridge loans is not so much about how much you can borrow, but, rather what the minimum amount you need for your specific property is. Thus, you will often see small bridge loans starting at a required minimum of $1,500,000 (Max LTV 90%) with medium to large and standard commercial bridge loans starting at a required minimum of $3,000,000(Max LTV 80% to 90%). Therefore, to make a long story short, make sure your offers are covering the right property type and that you are ultimately choosing a loan that allows you to accomplish your plans without unnecessarily costing you a bundle.

How to evaluate the Terms of a Commercial Bidge Loans

In regards to your potential bridge loan term, of course, they will vary from—as previously stated. But, generally, you should expect loan term options that cover a short period of time (around 6 months is typical) and that may allow for a possible extension if you can’t accomplish your goals within the selected loan time frame. You can also expect to pay an origination fee and other minimal cost associated with your loan. Nevertheless, if you do find a loan offer with the right amount, a good rate, manageable payment schedule acceptable terms and conditions—well, then you’ve pretty much found your offer.

Bridge Loans Alike

Ultimately, regardless of the lender you work with or the offer you end up choosing, you can also expect your bridge loan to require that you have a minimum of 75% in equity/ collateral.

Technorati Tags: commercial bridge loan,commercial lender,commercial lenders,commercial lending

How to work with a Commercial Lender

Dealing with Commercial real estate lenders can be beneficial for a variety of reasons. However, what really matters when it comes commercial real estate lenders is your end-goal with your commercial financing.
Securing commercial financing clearly starts with doing proper research on potential commercial real estate lenders. After doing your due diligence and narrowing down your lender options next comes the fun part of assembling your loan application package and hopefully getting approved. But, you may be wondering what comes next? In other words, you have the commercial financing and you move forward with your business venture, but what are the real benefits you will incur?
Well, these are both great questions that even your detailed business plan may have overlooked or rather only touched upon lightly. Therefore, let us go over what a commercial loan and acquired property really mean for your business. For instance, your commercial property becomes more than just a building or multi-family housing that you own. In fact, in many ways, you are now an investor, which means that your property has the potential provide an additional source of income on a regular basis ( leasing out the property is generally the most common way that a commercial property provides an additional income stream.). Moreover, your commercial property provides an excellent appreciation of asset value.
Furthermore, your commercial property or venture can help your current business grow by being a significant source of equity. A prime example of increased equity is when you are interested in obtaining more financing; your commercial property can help you obtain more without spending more. What is more, besides being a source equity, income, and appreciation of asset value, your commercial property can help you do even more with your business in terms. As briefly mentioned, finding the right lender for your commercial venture can open other business doors if you will. The wrong lender, on the other hand, may not put you in the position you need to be in order to repeat these down-the-line benefits. Thus, as you can see this first step is crucial to your bottom-line and end-goal.

Dreams come true with the Right Commercial Real Estate Lender

So, now that you know what is remotely possible with your commercial property or investment, let us take a step back and discuss how you can find the right lender for you. Of course, doing your own research cannot be stressed enough, but it is important to remember that when doing your lender research that you also need to be thinking ahead. In this instance, thinking ahead means comparing and contrasting loan types as well as thinking about your long-term goals with said property.

Commercial Real Estate Lenders - A Win-Win Solution

Ultimately, the best thing you can do to ensure that you find the right lender and are able to use your commercial venture in a beneficial way, it helps to reach out to your top five lenders. In doing so, you will be able to figure out the true potential of your future property as well as find out which lender understand your niche and your financing needs.

About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

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Technorati Tags: commercial real estate loan,commercial real estate lenders,commercial real estate lending,commercial lenders,commercial lendng