HomeAbout
Real Estate Popular
Since 2002
Welcome RealEstatePopular.com/blog updates all information about real estate foreclosure, apartment, mortgage listing, appraisal, construction & builder, mover.

Archive for May, 2012

Commercial Real Estate Mortgages

Thursday, May 24th, 2012

There are many types of commercial real estate mortgages that are available. Deciding on the type of financing you need or want depends on many factors. One of the most deciding factors is your exit strategy. If you plan to buy and keep a retail center for a long time, you would consider a long term permanent loan with a fixed interest rate. If you want to buy an apartment building and your strategy is to flip it pretty quickly, you want to consider a loan that has a low upfront cost and low interest rate. Here are the most common types of mortgages and how they are best utilized:

Long Term Loans – These loans are up to 10 years in length, are fixed rate loans, usually have a prepayment penalty and are typically amortized over 30 years.

Short Term Loans – These loans are typically up to 3 years in length, have lower interest rates than long term loans and are typically amortized for less than 30 years. These commercial real estate mortgages may suit you if you plan on selling the property within a short period of time and overall would cost you less because it doesn’t have a prepayment penalty.

Conduit Loans – These mortgages usually have low interest rates, with long amortization periods and can be nonrecourse loans. Nonrecourse means that you are not personally liable for the loan. These are good for properties that are stable with credit tenants.

Small Business Administration (SBA) Loans – These loans are insured by the SBA, given through SBA approved lenders and they have some of the most favorable terms such as low down payments, lengthier loan terms, as much as 40 year amortizations and low interest rates. Most of these loans are given to owners who occupy at least 51% of the property and can be used as a construction loan if you occupy at least 60% of the building.

Construction Loans – This type of financing is taken out to fund the construction of a project to completion or leasing to a certain percentage. These commercial real estate mortgages are usually done on a draw basis where the lender funds as the project is being built, have interest only payments and are usually for one to three years in length. Usually, they require a take-out loan commitment at the end of the term.

Mezzanine Loans – Most of these loans go with a permanent or construction loan, as lenders won’t exceed 80 percent loan-to-value. These loans stack on top of the other loan to get you up to a 90 percent loan-to-value. These are usually done on larger projects and they are typically not secured by a mortgage or deed of trust, but they are secured by a security agreement against the ownership’s stock in the LLC.

Bridge Loans – This type of financing is short term financing used to bridge the gap between finding a permanent loan and closing the permanent financing. They help to fund deals quickly.

Stated Income/No Documentation Loans – This type of loan doesn’t require borrowers to show proof of monthly income or income tax returns. This typically requires that you have good credit, the property must have solid cash flow and the property must be in excellent shape.

Hard Money Loans – These loans typically require a large down payment, have high interest rates and require you to pay three to ten points for the loan. These loans can usually close quickly and don’t require good credit. You might use this loan if you have found a really good deal and need money quickly.

Investment Properties for Commercial Real Estate

Wednesday, May 2nd, 2012

Customers have understandably wanted to pursue every avenue to sell their property. To do so, they often request that I list their property as an investment in addition to listing it under a particular commercial real estate category. While this may seem like a good idea, in my opinion, unless you really have a property that can be considered an investment property, it is not particularly helpful.

Recently, one client asked to have their office building listed as an investment property. Office properties can be an investment but in my opinion, this property did not qualify. It was about 50% vacant and all of the leases in place were short term leases.

Similarly, I have had clients ask to have land listed as investment property. Certainly, there are people who will buy and hold land for a potential windfall down the road but unless the land has a lease or some sort of on-going income potential, I do not think that it is appropriate to consider it an investment property.

For a true investor, neither of these cases would get you past first glance. For something to be an ideal Investment property, it should have the following –

Ongoing income streams – Usually this would be rent. In the past, some people have assumed an appreciation of the property over time in their decision process. In my opinion and in light of the tremendous devaluation of real estate over the last few years, that is a mistake. When making an investment decision, the best practice is to consider the actual income streams themselves in valuing the asset.

Long terms on the income streams – Ideally lease terms remaining should be 10 to 20 years. When buying an income property, a new owner does not want to pay for a property that may be vacant in 1 or 2 years.

Single tenant users – This is not to say that people will not consider multiple tenant properties however, as you increase the number of tenants, you also increase the number of potential headaches associated with the property.

Credit Tenants – Whether you have a single tenant or multiple tenants, the leases associated with the property are only as strong as the tenants.

Triple Net Leases – Ideally, an investor will simply want to collect rent and deposit a check. For them the best leases have the tenant responsible for the property taxes, insurance, utilities and maintenance of the building.

Full or nearly full occupancy – Some properties are advertised as income properties which have significant vacancy. These properties often advertise a cap rate for the property that assumes the vacant area will be leased at the asking lease rate and the asking price for the property. In my opinion, this is misleading. If a property is not fully leased, quoting a cap rate in this way makes no sense. An investor making an intelligent decision would be best served selecting a property which is fully occupied.

For Investors to compare apples to apples, they need an investment alternative that is basically as simple as any other investment option. With stocks, bonds, or interest bearing accounts, you simply invest the money and do not have to take on property maintenance, leasing and other chores and expenses. Of course, these criteria significantly reduce the number of properties which you might consider and I realize that not every property will have all of these features. But I will also tell you that properties like this do exist and can be found.

There are definitely properties which will sell that do not have all of these features and expectations of these features differ somewhat with the type of property (i.e. retail vs. office). However, if you are marketing the property as an Investment option, the successful seller will try to match these criteria as closely as possible.

Copyright © 2011 RealEstatePopular.com All rights reserved.
RealEstatePopular.com/blog provides free topics about home & garden, foreclosure, real estate insurance, bank, pest control, relocation.