Does a lender looking at a multi-family take into account the current occupancy rate of the unit? I could never cover the mortgage on my salary but with atleast 50% occupancy I could manage.
I have had lenders use a 5% vacancy calculation for properties that had 15% vacancy rate because the neighbourhood in question was good for rentals and the property was in good condition.
If there are property or neighbourhood problems that create the high vacancy rates the lender will not be so easily convinced. Obviously it helps if the lender knows the area in question.
I suggest that you explain why a lower vacancy rate can be justified, and then show how the property will support all expenses, vacancies and the loan payments. Put some thought into why current vacancies are high (not just for the lender, but to help you decide whether you can overcome the problems).
I use a two page summary that outlines the basics of the property and the financials to qualify lenders before taking part in a longer application process.
Certainly a lender will take into account a 50% vacancy, as will the appraiser in arriving at value.
But the entire point of how I present loans to lenders is to be upfront with the numbers and make sure they work before submitting a deal. So it all depends on how the 50% occupancy, perhaps combined with your personal income, support the debt service.
I've done plenty of loans with serious vacancy issues, but they've had enough push from active leases and other sources to make the loan happen.
Other factors come into play as well, such as your creditworthiness, net-worth, loan amount and LTV.
So work the numbers and present the best case possible. Get others involved if you need help creating the profile.
Hi Decision Man, We are in the process of making our first deal.
What companies should I deal with when finding a commercial loan? I went to "Lenderfinder" and a "mortgage broker" says he can shop my loan around. . It sounds like YOU shop your loans around yourself.
I sent my husband into Bank of America and they said there would be $24,000 in fees in Florida to close a $350,000 loan. (That included FL taxes).
That seemed kinda steep, any advice you can give would be appreciated! Thanks,
Linda
(my 8-year old insisted I add these funny faces.)[ Edited by LindaH on Date 12/30/2003 ]
I believe that Marcher's advice above is quite valid. You should prepare a profile of your property first before shopping lenders.
Its hard to recommend specific companies for you to deal with. There are so many commercial lenders with their own preferences for property types, minimum or maximum lending limits, State or geographical location of the property.
True, I broker loans, and even when I work a deal I'm not always sure right away which lender to use. What I can recommend is to develop a relationship with a few local lenders and maybe a broker or two that you can trust, so when you come across an interesting transaction you can make just a few calls and get a great perspective on the deal.
Dealing with too many lenders or brokers will result in one thing: The deal will be shopped to death. The commercial lending community has a lot of players, but it is rather close knit. Someone comes to me with a deal who's been shopping, I call a few people to make an inquiry, and they say "we've seen that deal several times already." That won't help you.
I have my own way of creating a profile to use in placing a loan. Along with many others in these forums, I have a very good software program that breaks down a deal, crunches the numbers, makes the necessary underwriting assumptions, and presents most of the information lenders need to size the loan. It interfaces with about 60 lenders, so quickly one can see who might be interested in the transaction.
Regarding fees, most lenders should be able to break down fees for you. Most direct loan fees are pretty close, such as appraisal, title insurance, closing, recording, and environmental. Lender specific-fees like underwriting and points are a different matter. I would need to know more about the transaction to give you any more detail.
While I'd be happy to work with you, there are also plenty of capable posters in these forums that can also help. You might want to make a lender search too.
Hi Decision-man,
I would like to make an offer on a property and then shop around for a loan, but I am really clueless!! I have no idea what underlying assumptions to make to see if a deal makes sense. For example, I asked the mortgage broker and he said to expect to pay 30-40% down on a multi-family and then I could get an 11% fixed. Does that sound correct to you?? Who wouldn't want to be in the Multi-family mortgage business! I had heard interest rates were low, but that seems steep to me.
If 30% down and 11% is the true interest rate then owner financed properties (at, say 7%) might as well cost WAY more than other ones.
30% and 11% is just plain nuts. You should be able to get a loan with 20% and no more than 7% for a commercial loan. Shop it if someone is telling you different.
30% down at 11% seems pretty high. It sounds like a stated-deal (vs fully-documented income & assets). It also sounds like the broker thought you had a low credit score. That's the only reason I can think that he would of quoted such terms.
Unless, he doesn't have experienced in commercial mortgage loans. Make some calls and listen to the questions you're asked by brokers and bankers. See who is really creating a profile that can be priced.
You don't need to have an offer in place to search for financing. And even if you do, make sure you can get out of the deal and get your EMD back if you can't arrange financing.
IM me if you want some help in creating the profile.
I have my own way of creating a profile to use in placing a loan. Along with many others in these forums, I have a very good software program that breaks down a deal, crunches the numbers, makes the necessary underwriting assumptions, and presents most of the information lenders need to size the loan. It interfaces with about 60 lenders, so quickly one can see who might be interested in the transaction.
Regarding fees, most lenders should be able to break down fees for you. Most direct loan fees are pretty close, such as appraisal, title insurance, closing, recording, and environmental. Lender specific-fees like underwriting and points are a different matter. I would need to know more about the transaction to give you any more detail.
While I'd be happy to work with you, there are also plenty of capable posters in these forums that can also help. You might want to make a lender search too.
What is the software program to which you are referring in this reply?
Lenders look at the whole picture, work history, credit depth, credit history, and reserves,(401k, mutual funds, savings, ect.) When looking at the property they use Schedule E and leases to determine affordability for the loan along with your current income. LORI
You can get 3.7% on an ARM, as low as 4.7% on a 5 yr fixed and 5.2% on a 10 yr fixed all amortized over 30 yrs. This is assuming at least 25% down and an 85% occupancy rate. If it still cash flows at an amount greater than expenses and debt coverage, than you can get financing at a lower occupancy rate. Check my profile and contact me if you are interested in this.
I have had lenders use a 5% vacancy calculation for properties that had 15% vacancy rate because the neighbourhood in question was good for rentals and the property was in good condition.
If there are property or neighbourhood problems that create the high vacancy rates the lender will not be so easily convinced. Obviously it helps if the lender knows the area in question.
I suggest that you explain why a lower vacancy rate can be justified, and then show how the property will support all expenses, vacancies and the loan payments. Put some thought into why current vacancies are high (not just for the lender, but to help you decide whether you can overcome the problems).
I use a two page summary that outlines the basics of the property and the financials to qualify lenders before taking part in a longer application process.
Most I have seen require a minimum 90% occupancy rate for maybe 3-6 months going back
Certainly a lender will take into account a 50% vacancy, as will the appraiser in arriving at value.
But the entire point of how I present loans to lenders is to be upfront with the numbers and make sure they work before submitting a deal. So it all depends on how the 50% occupancy, perhaps combined with your personal income, support the debt service.
I've done plenty of loans with serious vacancy issues, but they've had enough push from active leases and other sources to make the loan happen.
Other factors come into play as well, such as your creditworthiness, net-worth, loan amount and LTV.
So work the numbers and present the best case possible. Get others involved if you need help creating the profile.
Hi Decision Man, We are in the process of making our first deal.
What companies should I deal with when finding a commercial loan? I went to "Lenderfinder" and a "mortgage broker" says he can shop my loan around. . It sounds like YOU shop your loans around yourself.
I sent my husband into Bank of America and they said there would be $24,000 in fees in Florida to close a $350,000 loan. (That included FL taxes).
That seemed kinda steep, any advice you can give would be appreciated! Thanks,
Linda
(my 8-year old insisted I add these funny faces.)[ Edited by LindaH on Date 12/30/2003 ]
I believe that Marcher's advice above is quite valid. You should prepare a profile of your property first before shopping lenders.
Its hard to recommend specific companies for you to deal with. There are so many commercial lenders with their own preferences for property types, minimum or maximum lending limits, State or geographical location of the property.
True, I broker loans, and even when I work a deal I'm not always sure right away which lender to use. What I can recommend is to develop a relationship with a few local lenders and maybe a broker or two that you can trust, so when you come across an interesting transaction you can make just a few calls and get a great perspective on the deal.
Dealing with too many lenders or brokers will result in one thing: The deal will be shopped to death. The commercial lending community has a lot of players, but it is rather close knit. Someone comes to me with a deal who's been shopping, I call a few people to make an inquiry, and they say "we've seen that deal several times already." That won't help you.
I have my own way of creating a profile to use in placing a loan. Along with many others in these forums, I have a very good software program that breaks down a deal, crunches the numbers, makes the necessary underwriting assumptions, and presents most of the information lenders need to size the loan. It interfaces with about 60 lenders, so quickly one can see who might be interested in the transaction.
Regarding fees, most lenders should be able to break down fees for you. Most direct loan fees are pretty close, such as appraisal, title insurance, closing, recording, and environmental. Lender specific-fees like underwriting and points are a different matter. I would need to know more about the transaction to give you any more detail.
While I'd be happy to work with you, there are also plenty of capable posters in these forums that can also help. You might want to make a lender search too.
Hi Decision-man,
I would like to make an offer on a property and then shop around for a loan, but I am really clueless!! I have no idea what underlying assumptions to make to see if a deal makes sense. For example, I asked the mortgage broker and he said to expect to pay 30-40% down on a multi-family and then I could get an 11% fixed. Does that sound correct to you?? Who wouldn't want to be in the Multi-family mortgage business! I had heard interest rates were low, but that seems steep to me.
If 30% down and 11% is the true interest rate then owner financed properties (at, say 7%) might as well cost WAY more than other ones.
Linda
Linda...
30% and 11% is just plain nuts. You should be able to get a loan with 20% and no more than 7% for a commercial loan. Shop it if someone is telling you different.
Some lenders may require 30%, but for that you should get a pretty good rate.
Even on a difficult deal that I am trying to work I am looking at 20% down and 6.875% (or a "no," we shall see).
Linda,
30% down at 11% seems pretty high. It sounds like a stated-deal (vs fully-documented income & assets). It also sounds like the broker thought you had a low credit score. That's the only reason I can think that he would of quoted such terms.
Unless, he doesn't have experienced in commercial mortgage loans. Make some calls and listen to the questions you're asked by brokers and bankers. See who is really creating a profile that can be priced.
You don't need to have an offer in place to search for financing. And even if you do, make sure you can get out of the deal and get your EMD back if you can't arrange financing.
IM me if you want some help in creating the profile.
Quote:
On 2003-12-30 11:31, DecisionMan wrote:
I have my own way of creating a profile to use in placing a loan. Along with many others in these forums, I have a very good software program that breaks down a deal, crunches the numbers, makes the necessary underwriting assumptions, and presents most of the information lenders need to size the loan. It interfaces with about 60 lenders, so quickly one can see who might be interested in the transaction.
Regarding fees, most lenders should be able to break down fees for you. Most direct loan fees are pretty close, such as appraisal, title insurance, closing, recording, and environmental. Lender specific-fees like underwriting and points are a different matter. I would need to know more about the transaction to give you any more detail.
While I'd be happy to work with you, there are also plenty of capable posters in these forums that can also help. You might want to make a lender search too.
What is the software program to which you are referring in this reply?
Lenders look at the whole picture, work history, credit depth, credit history, and reserves,(401k, mutual funds, savings, ect.) When looking at the property they use Schedule E and leases to determine affordability for the loan along with your current income. LORI
marketsolutions - the program is from lendingapps. It costs a couple thousand bucks and takes a while to learn and become proficient with.
You can get 3.7% on an ARM, as low as 4.7% on a 5 yr fixed and 5.2% on a 10 yr fixed all amortized over 30 yrs. This is assuming at least 25% down and an 85% occupancy rate. If it still cash flows at an amount greater than expenses and debt coverage, than you can get financing at a lower occupancy rate. Check my profile and contact me if you are interested in this.