There are many differences between financing commercial real estate and a residential mortgage loan, so when you attempt to get financing for your first commercial property, you need to understand that the knowledge you have for home mortgages will not help you much. A commercial property loan is much different. The following are just a few things you should know.
The lender will look at the deal, not your personal finances
Your credit and personal assets will only provide a view of the level of your financial responsibility. Even your credit is less important than the deal itself. A lender will want to see the income the property will generate. As a rule of thumb, the more income it generates, the higher the amount of the loan. The lender will want details, so you need to be meticulous when providing them. If the income is based upon certain improvements to the property, you will need to provide details on how this will increase monthly income.
The lender will look at the borrow's skill set
Every lender will look at the property and its feasibility for generating income. You are likely aware of that, but they will be looking at you as well. They will want to know the skills you have to make the property profitable and to keep profitable. If, for example, you are buying a commercial strip mall, they may want to see a history of marketing skills that can be applied to attract tenants to the property, so it is fully occupied. Because it is your first commercial property, if you lack all the operational skills needed, you may want to find a partner who does.
The lender may have stipulations for the loan
These will be requirements from the lender that you must abide by throughout the duration of the loan. For example, if you are financing an apartment complex, you may be required to use a professional management company. The lender may also require seeing financial statements on a quarterly basis. Finding a good property that will produce income is often not enough to get the financing you want as a first-time buyer.
When you are preparing to make your first commercial real estate investment, you should be aware of the important differences between mortgages for residential homes and commercial real estate loans. Your personal finances are not as much of a factor as the deal itself. The lender will want to know how much income is generated by the property and how this will be done. You need to be precise in the details of the deal. The lender will look at your skill set and there will likely be stipulations for the loan, such as requiring a financial statement each quarter.
For more info, contact a local company like CSA Capital.Share