Commercial property and commercial real estate loans have a lot of 搈oving parts? and the approach this commercial lenders take is far not the same as those in residential financial.? What is commercial home owner loan planning?? Which is the best loan?? This way:? 揟he best commercial mortgage is the one that best fits the store-bought investor抯 short and long-term goals, risk tolerance, investment style and the investment at hand. 敔
This question came from Kiho Kim in Anaheim, California and, surprisingly, doesn抰 have a straightforward answer.? When somebody asks me that concern, I know that they抮e probably preoccupied with one thing:? The loan with the lowest interest rate.? Unfortunately, in commercial real residence, this approach can land up costing you a lot of money.
When you get in the middle of commercial real estate, you become involved in a more sophisticated manner of investing your money.? Commercial real estate and commercial realty loans have a lot of 搈oving parts? and the approach this commercial lenders take is far not the same as those in residential financial.? When considering financing on a piece of investment property, you will need to approach the process with爺commercial home owner loan planning? in mind.
What is commercial mortgage planning?? It抯 a process in which all parts of the loan are considered in your context of the commercial realty investor抯 current portfolio, future portfolio goals, style from investment, and cash flow needs.? Let抯 see how this works inside a practical example and in that case use that example to further answer the original question while in the first paragraph.
Which is the best loan?? A 3/1 ARM with a declining 3 year pre-payment punishment of 3%-2%-1%, a quote of 6. 75%, a full amortization of 30 years, and a margin from 2. 50% over 6 30 days LIBOR, or a 10 time fixed rate loan due in ten years, with a 30 time amortization, at a amount of 5. 9%, with a Yield Maintenance prepayment penalty until 9. 75 many years have passed?
On the face of it, the 30 due in 10 is almost a full percentage time less in rate!? No brainer, right?? Let抯 fill in a few more details and see should this analysis stands.
The investor contemplating the loan happens to be an active real estate entrepreneur who purchases properties which happen to have vacancies or month to month tenants that are a little bit run down and looking for upgrades.? He holds buildings until re-tenanted, renovated, and then sells them to produce cash for new purchases in a 1031 Exchange to maintain his buying power.
In light of this information, the 30 due in 10 would be a terrible loan.? It抯 likely that such an investor would be prepared sell the property in your 3rd year to take advantage of the 1031 Exchange holding period and supply a stabilized leasing history for a new buyer.? He抎 only face a 1% pre-payment penalty using the 3/1 ARM, something he or she could easily factor within his 揷osts. 敔 The fixed rate loan using its Yield Maintenance pre-payment fine could literally cost him hundreds of thousands of dollars, depending at market conditions, when he goes to sell the property.? In fact, it would likely include a 搇ock out? clause completely preventing a payoff for up to 4 years.? That loan would have to be assumed by the ultra-modern buyer and the difference fabricated in cash, limiting the potential pool of buyers for that property.
So how truly does this example answer a lot of our question:? 揥hat is the right commercial mortgage? 敔 This way:? 揟he best commercial mortgage is the one that best fits the store-bought investor抯 short and long-term goals, risk tolerance, investment style and the investment at hand. 敔 And as a side note, be sure to work with someone experienced but not just in commercial loan stock broker, but who will take the time to consider all of the factors that might affect the current and future transactions.
Article Tags:
Commercial Real Estate, Best Commercial, Commercial Real, Real estate, Pre-payment Penalty
