What to Expect when Attempting to Fund a Commercial Property Purchase/Re-Finance
2004-08-24
Obtaining commercial property loans can be daunting for the first time investor. Commercial property loans are similar in many ways to private residential loans, but differ enough to warrant a thorough review of the process before proceeding for the first time.
If you are looking for a commercial property loan for a building or facility for your own company to use, you will not have an income producing property. Rather, your commercial property loan will be based on the merits of your business and the actual resale value of the commercial property you are about to purchase. For a private business use commercial property loan, be prepared to provide 3 years of taxes, financial statements, and perhaps even a business or business expansion plan.
If your commercial property loan will be used to purchase or refinance a commercial property that is already income producing, such as an apartment building, office or industrial building that is rented out, your commercial property loan will be based on the current selling price (value) of the property and the viability of paying back the loan based on the income it is producing. Your commercial property loan officer may also look at the use of funds. If you plan to make improvements with the proceeds of the loan, then you may reasonably realize an increase in income from the property, thereby yielding a more favorable loan package. Be sure to include any such information when making your initial request for an income producing commercial property loan.
As a rule of thumb, commercial property loan officers use the 60/40 rule when determining the net income on a commercial property. Simply put, 40% of the gross income is reasonably considered to be net income. The balance constitutes the net operating expenses. When applying for a commercial property loan, it is best to use these figures or explain in detail to your commercial property loan officer why your numbers are better or worse.
If you are looking for a commercial property loan for a building or facility for your own company to use, you will not have an income producing property. Rather, your commercial property loan will be based on the merits of your business and the actual resale value of the commercial property you are about to purchase. For a private business use commercial property loan, be prepared to provide 3 years of taxes, financial statements, and perhaps even a business or business expansion plan.
If your commercial property loan will be used to purchase or refinance a commercial property that is already income producing, such as an apartment building, office or industrial building that is rented out, your commercial property loan will be based on the current selling price (value) of the property and the viability of paying back the loan based on the income it is producing. Your commercial property loan officer may also look at the use of funds. If you plan to make improvements with the proceeds of the loan, then you may reasonably realize an increase in income from the property, thereby yielding a more favorable loan package. Be sure to include any such information when making your initial request for an income producing commercial property loan.
As a rule of thumb, commercial property loan officers use the 60/40 rule when determining the net income on a commercial property. Simply put, 40% of the gross income is reasonably considered to be net income. The balance constitutes the net operating expenses. When applying for a commercial property loan, it is best to use these figures or explain in detail to your commercial property loan officer why your numbers are better or worse.
