For
those of you who have not purchased an income property, don’t be nervous. No
one was born an expert, not even “the Donald” — for everyone there’s a
first time…
Be aware -- Today there
are many properties that do not "cash flow" with the more standard financing
of 75% to 80%. Look for a debt
service coverage ratio (“DSCR”) of 1.25.
If that ratio is not present, you will have an extremely hard time getting
acceptable financing — unless you’re in a position to increase your down
payment, therefore lowering the loan amount, which then allows the property
to cash flow.
Remember lenders don’t
bank on appreciation as the basis for a loan...
lenders look to the historic, current, and potential "cash flow" because
that determines the true value of the property.
The business of lending
money is largely based on common business sense.
Commercial real estate has
value only if it can produce income. If you have the experience and
knowledge to make a given property produce a excellent income, then there is
a good reason for a lender to provide a mortgage.
For example, financing
hotels and motels, whether “flagged” such as Holiday Inns, etc. or
"non-flagged", like the Bayside Inn, present unique challenges.
Normally the “flagged”
hotel will have the support of national advertising and a reservation system
that helps keep its rooms occupied.
Occasionally independent
"non-flagged" hotels have built a reputation for quality and enjoy
a solid income without the flag but that's rare these days, so the
non-flagged hotels are difficult to finance.
It's important for you
as an investor to know that a lender is really your potential partner. If
you approach the loan request with that in mind, you'll better understand
the necessity of providing accurate financial and business details. The
lender really wants the same information you need to make a sound investment
decision.
Every loan has a
story. Send us the story of your project, we’ll respond quickly. If we
can be of help, we’ll tell you. If not, we’ll also tell you.
So unless you are a
“Donald” and personally know all the lenders you’ll ever need … we’re here
to help you get the loan you or your client require. However, no brokerage
firm nor lender can or will issue any assurances or guarantees that your
loan can be funded.
Thank
you.
David Koontz
