Replying to the decelerating economy, downturn in real estate values and current "credit crunch" even highly flexible, personal "hard cash" commercial mortgage banks have tightened their lending standards and adjusted their criteria.
Money
The most important change, and the most distressing to borrowers, has been to down-payment necessities. Virtually all license moneylender , private and standard, have stopped originating 100% financing. Cash-in-the game is a , nearly universal mandate.
10% hard equity (money down or cash previously contributed) is what most commercial hard money folk consider reasonable. Before they make a mortgage they need to know that the borrower has made a genuine, financial commitment to the building or development. Unpleasant experience has demonstrated that the less cash an investor has put in, the likelier they are to walk away when things get troublesome.
Many banks will allow fairly large seller carried 2nds or mezzanine loans but total debt can't surpass 90% of the purchase price or total project costs. The hard money lender will insist that their mortgage be in the 1st position. For loans against quality commercial property, hard money execs will usually lend up-to 50% of the value of land, 60% on empty buildings or buildings with inadequate cash flow and 65% on earnings-producing commercial buildings such as multi-family, office or retail.
Experience
Today funding sources worry about the safeness of their capital. They wish to make loans to experienced, licensed executives. Now isn't the time to ask a lender to provide financing for experiment. If you're purchasing a gas station it'll help if you have real world, on-the-job, automobile industry experience. If you've always had a dream to run a hotel but have no hospitality background, keep dreaming till cash starts flowing.
My guidance to those lacking relevant experience in any particular world of commercial property is to build a team or form a cooperation with seasoned execs in the area you need to break into. First time investors frighten loan officials. Team up, split the profits, develop experience, make a big name for yourself and it won't be long before banks are calling you.
Exit
Private loans are short-term loans, generally 6-36 month, infrequently more. Hard money banks are not lend-to-own lenders; they don't want to take back your property. Before they close an agreement with you they'll wish to know exactly how you are going to pay them back. The 2 most common and obvious exit strategies are: refinance the property or sell the property.
If you plan to refinance at the end of the primary mortgage, you must prove to the lender that you and the property will be in a position to qualify when the time comes. It will not be enough to say that you can cross that bridge when you come to it. Do your prep and show the hard money mortgage source that you know what it will take to refi and you'll do what's needed to refi. Your deal will depend on it.
If your exit is a sell out of the collateral property, do consumer analysis, put together a marketing plan and a capable marketing team. Be realistic in your sales price projections take the emotion out of setting the sales price by getting an "as-completed" evaluation or a "Brokers Price Opinion" (BPO) done by a commercial consultant. Your promotional program should start right away and run across the whole project. Potential lenders wish to know that you will work as hard clearing a loan as you may to qualify for a loan. A sound, well thought out exit plan is a total must, today more and more.
Make no mistake about it; funding is more difficult to come by. Investment and loan standards have tightened up across the whole commercial real estate finance industry. Accept the fact that lenders have stopped financing questionable bargains. Today, and for the foreseeable future, a deal will have to be remarkable in-order-to secure a house buyer's loan.
Do not squander your time trying to push a weak deal through, instead bring some cash to the table, work with property types you've got good experience with and ensure you have a feasible exit plan. That's the formula for getting subsidized instead of frustrated.
Money
The most important change, and the most distressing to borrowers, has been to down-payment necessities. Virtually all license moneylender , private and standard, have stopped originating 100% financing. Cash-in-the game is a , nearly universal mandate.
10% hard equity (money down or cash previously contributed) is what most commercial hard money folk consider reasonable. Before they make a mortgage they need to know that the borrower has made a genuine, financial commitment to the building or development. Unpleasant experience has demonstrated that the less cash an investor has put in, the likelier they are to walk away when things get troublesome.
Many banks will allow fairly large seller carried 2nds or mezzanine loans but total debt can't surpass 90% of the purchase price or total project costs. The hard money lender will insist that their mortgage be in the 1st position. For loans against quality commercial property, hard money execs will usually lend up-to 50% of the value of land, 60% on empty buildings or buildings with inadequate cash flow and 65% on earnings-producing commercial buildings such as multi-family, office or retail.
Experience
Today funding sources worry about the safeness of their capital. They wish to make loans to experienced, licensed executives. Now isn't the time to ask a lender to provide financing for experiment. If you're purchasing a gas station it'll help if you have real world, on-the-job, automobile industry experience. If you've always had a dream to run a hotel but have no hospitality background, keep dreaming till cash starts flowing.
My guidance to those lacking relevant experience in any particular world of commercial property is to build a team or form a cooperation with seasoned execs in the area you need to break into. First time investors frighten loan officials. Team up, split the profits, develop experience, make a big name for yourself and it won't be long before banks are calling you.
Exit
Private loans are short-term loans, generally 6-36 month, infrequently more. Hard money banks are not lend-to-own lenders; they don't want to take back your property. Before they close an agreement with you they'll wish to know exactly how you are going to pay them back. The 2 most common and obvious exit strategies are: refinance the property or sell the property.
If you plan to refinance at the end of the primary mortgage, you must prove to the lender that you and the property will be in a position to qualify when the time comes. It will not be enough to say that you can cross that bridge when you come to it. Do your prep and show the hard money mortgage source that you know what it will take to refi and you'll do what's needed to refi. Your deal will depend on it.
If your exit is a sell out of the collateral property, do consumer analysis, put together a marketing plan and a capable marketing team. Be realistic in your sales price projections take the emotion out of setting the sales price by getting an "as-completed" evaluation or a "Brokers Price Opinion" (BPO) done by a commercial consultant. Your promotional program should start right away and run across the whole project. Potential lenders wish to know that you will work as hard clearing a loan as you may to qualify for a loan. A sound, well thought out exit plan is a total must, today more and more.
Make no mistake about it; funding is more difficult to come by. Investment and loan standards have tightened up across the whole commercial real estate finance industry. Accept the fact that lenders have stopped financing questionable bargains. Today, and for the foreseeable future, a deal will have to be remarkable in-order-to secure a house buyer's loan.
Do not squander your time trying to push a weak deal through, instead bring some cash to the table, work with property types you've got good experience with and ensure you have a feasible exit plan. That's the formula for getting subsidized instead of frustrated.
About the Author:
Robert Newton is a business writer focusing on finance and singapore loans and has written authoritative articles on the finance industry. He has done his experts in Business Administration and is presently assisting as a personalloan specialist.
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