| Setting The Record Straight | | | | If the fit hits the shan in a borrower's |
| | | | personal life and money becomes tight, |
| There is a metaphorical place in any business | | | | lender's conventional wisdom says that the |
| when the seeker of inside secrets reaches | | | | borrower will shift his resources to protect |
| that signpost that says something like: | | | | his personal residence ahead of his |
| "Beewair … Theyre bee Dragyns ahed." | | | | commercial investments. This may not seem |
| Again, keep in mind I am being highly | | | | immediately apparent when you look at the |
| metaphorical, but I've been asked a number of | | | | spread between home loan rates and Wall |
| times about a certain type of commercial real | | | | Street conduit rates (these commercial rates |
| estate financing that makes me begin to | | | | are actually lower than most residential |
| suspect that someone is out there selling | | | | ones). However, you need to check the terms |
| investment property "treasure maps" for $5.00 | | | | to see the difference. |
| each! And you know just how much treasure you | | | | |
| will find following such a map. So as a | | | | You can still by a primary residence with no |
| professional commercial real estate loan | | | | money down and good credit. You can not |
| broker, I am here to set the record straight: | | | | purchase a commercial property without some |
| | | | form of equity investment. In most cases, the |
| NO LENDER offers a 100% Loan to Value | | | | commercial lender wants to see a minimum of |
| commercial real estate loan. | | | | 15% equity in the deal, although you can find |
| | | | some that will allow 10% provided the |
| And I define "lender" to mean a source of | | | | property meets minimum debt service |
| capital that provides debt financing, secured | | | | requirements. But good luck finding that |
| by real property. | | | | situation in most good markets. Oh, and very |
| | | | few commercial loans go full term like |
| So for all of you seeking that 20% Seller | | | | residential loans (yes, I know that there are |
| Carry and the 80% purchase money loan on a | | | | exceptions). Most are balloons at 10 years. |
| property you think is worth three times the | | | | |
| purchase price … please, join us back | | | | Yes, you can engage a mezzanine lender to |
| here in reality. If pigs had wings, they | | | | fund almost all of the equity difference, but |
| would fly. So, if a lender was willing to | | | | you are really going to pay for it either in |
| allow you to purchase a property on those | | | | points and rate or in some form of equity |
| terms, why would they need you? They would | | | | kicker … which takes us away from my |
| make a whole lot more money doing the | | | | definition of lender. And mezzanine lenders |
| transaction themselves! | | | | don't make loans on the property itself |
| | | | … which is a whole other story. |
| Here is the reality concerning commercial | | | | |
| real estate from a lender's perspective: | | | | Thus, it bears repeating: There are no 100% |
| Commercial real estate is considered an | | | | LTV commercial loan programs! Commercial real |
| investment, not a basic need, such as a roof | | | | estate is for serious investors with equity |
| over your head. Because investment real | | | | to risk, a positive net worth, and an asset |
| estate is "secondary" to a borrower's | | | | that a lender would feel comfortable |
| personal residence, it is usually considered | | | | encumbering. So the next time someone |
| a higher risk loan. | | | | approaches you with a map to a pot of |
| | | | commercial real estate loan "gold" … |
| Why? | | | | save your money for a latte at Starbucks! |
| | | | |