How To Determine If A Rental Property Will Cash Flow How to Get the Best Rate on Your Commercial Mortgage

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How to Get the Best Rate on Your Commercial Mortgage

Commercial mortgage customers often ask us how lenders determine the rates they offer on commercial mortgages. There are many criteria that lenders use when determining rates, but lenders will assess the relative risk of a loan when they review a loan application. The lower the risk, the lower the rate. The higher the risk, the higher the rate. It is important to understand what factors are important to lenders and underwriters.

– Qualifications of the borrower. Lenders will analyze the borrower’s or guarantor’s net worth, liquidity, cash flow, credit history and real estate experience in determining overall risk. Lenders like to see borrowers with a good track record who own and manage similar properties. They want to see sufficient cash reserves to cover unexpected problems that may arise and expect borrowers to have a good history of paying their bills on time.

– Property location and market. Good quality properties in large urban and suburban areas are considered lower risk than inferior properties and properties in small rural areas. Good properties in good locations are easier to rent in case the tenants move out or in situations where the remaining lease terms are short. For example, if a property in a bad location remains vacant, a significant amount of renovation will be required to attract new tenants.

– A mix of tenants. Multi-tenancy properties with quality tenants and long-term leases are highly desirable when financing office and retail properties. Lenders don’t like vacancies, high turnover rates and properties in constant flux. Lenders like to see well-run properties that attract and retain long-term tenants

– Stabilized occupancy. Lenders look for properties that have had a high level of occupancy with minimal disruption over the past 2 to 3 years. Properties with vacancies and a changing rental history are considered riskier. Lenders will ask for business reports for the last 2-3 years. They expect constant occupancy and an increase in net income. Real estate that fluctuates wildly with income and expenses will create many questions.

– Property condition. Properties in good condition with little deferred maintenance are considered lower risk than properties in need of major capital improvements. Properties in poor condition will usually require the lender to set aside or deposit funds for repairs and maintenance. Properties in poor condition perform worse than well-maintained properties.

– Lever. Loan-to-Value is very important in determining risk. A 50% LTV (loan to value) loan will be better than an 80% LTV loan. If the property is experiencing difficulties, there is much more room for error with subprime loans.

– Debt coverage. This refers to the excess of net operating income in relation to annual mortgage payments. The more excess cash flow real estate produces, the lower the risk. Excess cash flow can be used to mitigate turnover, repairs or other cash outflows.

At the end of the day, lenders don’t want to expose their borrowers to unnecessary risk. The borrower should be prepared to resolve all of these issues to the satisfaction of the lender when applying to increase the chances of getting approved for the loan at the lowest possible rate.

Once you’ve qualified for a commercial mortgage loan, it’s helpful to get an idea of ​​your proposed monthly payment in advance. The commercial mortgage calculator is a very helpful and useful tool. Whether you’re buying a new office building or refinancing an existing commercial loan, it’s helpful to know how much you can afford to borrow at today’s rates. A commercial mortgage calculator will calculate your monthly payment for you. You will be asked to enter the loan amount, number of years and interest rate. The mortgage calculator will calculate your monthly payment.

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