Maximizing Your Commercial Real Estate Financing
BATTLECALL GUEST EXPERT: Tony Seruga, Maverick
Real Estate
Locating financing for every commercial project is not always an easy feat.
Many items can affect the acceptance of a loan, how much is loaned, and under
what specific terms the loan is given. As a commercial real estate insider, it
is important to always be completely prepared when approaching a lender, whether
it is a commercial bank, savings and loan company, or a private
investor.
The key to success in commercial real estate is maximizing all
aspects of the business. This includes resources, energy, time, return on
investment, as well as financing. Without good financing and a dependable
lender, commercial real estate is not a business to be in, unless, of course,
you have your own multi-million dollars lying around just waiting to be
invested. In some cases this may be true, and congratulations! However, for most
of us, we rely on other people's money (OPM) to build the wealth and riches we
dream about every day.
In order to get the financing you need absolutely
every time you apply for it, you must take some necessary steps and precautions
that prove your project is worthy of the money loaned to you.
I must
insert here, that because of the amounts of money that are loaned in commercial
real estate, almost everything can be non-recourse, and written that way in the
contract. Non-recourse means that no one must personally sign for the loan. In
fact, the borrower is often secondary to the actual property and project in
question. The property acts as the guarantor of the loan. After all, this is
where the actual money and value lies, not in the borrower's pockets.
Always remember that the property is responsible for returning the money
loaned to the lender, because that is where the value is found. The lender must
trust the borrower and his or her assessment of the property, its intended use
and projected income or profit of the property in order to feel completely
comfortable with loaning the money.
So what are some steps and
precautions you need to take in order to yield the results you want with the
lender every time?
What you want to do is build a development or loan
package for every property for which you want money. This package is much like a
business proposal, and must be done professionally, accurately, and clearly.
This loan package should have everything the lender needs to make a decision
whether or not money should be lent on the project.
The most important
aspect of this loan package is the reason for the loan. Generally, it must be a
solid, economic reason that shows the income projected and exactly what funds
will be available to pay the lender back. After all, the number one concern of
the lender is that the loan will be paid in full, with the interest agreed upon
in the contract.
This economically solid reason may be shown through
income and expense sheets, comparisons to other properties similar to the one
you will be working on, and any other important economic information that proves
you can pay the money back.
Because every project is different, it may
require varying criteria that must be met. For example, if it is a corner lot
for a shopping center, traffic counts, whether or not there is a light on the
corner or a four lane road, and the location of the closest residential
development that will support this shopping center area are all facts that must
be included in this loan package. Population, growth, any future changes in
infrastructure that might affect your project and so on must all be addressed,
as it is necessary to your specific project.
Bottom line, you must have
every ounce of supporting detail regarding your property, project and projected
income. This loan package should be like you are optioning your first born
child, and he means everything to you. I know this simile is extreme, but that
is how money is borrowed by the commercial real estate insider.
Impress
the lender with a profitable project, quality and accurate information, and you
will get your money.
Many lenders, especially if they are local, may know
an area well, and will automatically be able to assess your project as something
they will or will not support. There may be other lenders that are thousands of
miles away, and know nothing about your area of interest. The distance of the
lenders can affect the feasibility of a project, and some would say you would
not need to provide as much information for the local lender as you would the
far distanced lender. However, I say, if you want the money, do it the same for
each lender.
Look at it this way. If your local lender does not finance
the project, then you can easily transfer your loan package to another lender no
matter where they are located.
Consistency in quality will earn you a
reputation as someone to do business with. This is exactly where you want to be
in this business: reputable, honest, and one good real estate insider.
As
you increase the amount of financing you need, build rapport with the lenders
you have and will work with. Always present yourself to these lenders in a
professional, intelligent manner, and be perfectly prepared to do
business.
Always follow a specific lender's application process and
guidelines. If you do everything the way they want you to do it, they look to
you as someone who is dependable and willing to make things easy and
straightforward, without a lot of road blocks along the way. The smoother you
can facilitate the process, the more likely you are to get the money you
need.
Lenders are concerned with one thing, making profits by getting
their money back with interest. The object is simple. Show them your project can
do this, and you will get your money. Have a defined amount of money you need,
and stick to it. Don't ever be wishy-washy, and stand your ground on what it is
you want to accomplish.
Maximizing your financing is an asset to the
commercial real estate insider. Your ability to conquer more and more
opportunities relies greatly on your ability to get funding; so master this
skill, and you will be on your way to a real estate fortune!
Got an opinion? We want to hear from you. Post your thoughts or comments here in our Mortgage Warrior Forum. Come join the conversation and say hello...onward mortgage warrior!
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