Monthly Archives: March 2017

Credit Real Estate Loan

For acquiring an area of land or developed plot, huge funds are needed which are hard to find from own sources. In case of the aspirant labeled as bad credit then taking necessary finance becomes tough task. Bad credit real estate loan comes to the rescue of these fund seekers. The loan can be availed at lower interest rate despite bad credit. Thus the loan goes a long way in lowering the cost of acquiring property.

Bad credit real estate loan is mostly offered by banks or financial institutions. They closely look into borrower’s credentials like credit history; credit score to decide over loan approval. Credit cards, mortgages, bankruptcy filings and other information’s also count a lot in the loan offer. The loan seeker’s credit worthiness is represented well in his credit score which on FICO scale ranges from 300 to 850 and credit score below 580 is considered risky and bad credit for loan offer.

Your bad credit does not come in the way of taking bad credit real estate loan and acquiring property if you decide to opt for the secured version of the loan. The aspirant buyer has to secure the loan through any of his property such as home, placed with the lender as collateral. After the loan secured, one can ask for any amount of loan to buy real estate. Another way of securing the loan that the lender takes the deal papers of the concerned property in his possession. The deal papers are returned back only when the loan is fully paid off. The borrower, meanwhile, can use the property as he likes.

If secured, the loan is offered at lower interest rate which can be reduced further once the property buyer compares different lenders for lowest possible interest rate as each lender has own rate. Also, if borrower asks for a lower amount than equity in collateral, the loan is availed at reduced interest rate. You can comfortably return the loan in 5 to 30 years period.

Another way to avail the loan is to use good credit of your business partner who can join you in buying the real estate. This is very popular way of availing loan in business circles. This way your partner’s good credit becomes yours and you take the loan at relaxed conditions. In lieu of good credit you can offer a portion of business to your partner. Meanwhile you should make efforts to improve credit score. To do this, pay off bills in time. Credit rating can be improved on forming your own business venture that will give you a regular income and a good employment history.

Prefer online for applying the loan. This medium allows you access of numerous lenders and you can compare loan packages for easier terms-conditions including interest rates.

Bad credit real estate loan is of great help for acquiring real estate at lower interest rate and low cost. Make sure you pay off the loan installments in time to avoid any debt trap.

To Close A Commercial Real Estate Loan

For nearly 30 years, I have represented borrowers and lenders in commercial real estate transactions. During this time it has become apparent that many Buyers do not have a clear understanding of what is required to document a commercial real estate loan. Unless the basics are understood, the likelihood of success in closing a commercial real estate transaction is greatly reduced.

Throughout the process of negotiating the sale contract, all parties must keep their eye on what the Buyer’s lender will reasonably require as a condition to financing the purchase. This may not be what the parties want to focus on, but if this aspect of the transaction is ignored, the deal may not close at all.

Sellers and their agents often express the attitude that the Buyer’s financing is the Buyer’s problem, not theirs. Perhaps, but facilitating Buyer’s financing should certainly be of interest to Sellers. How many sale transactions will close if the Buyer cannot get financing?

This is not to suggest that Sellers should intrude upon the relationship between the Buyer and its lender, or become actively involved in obtaining Buyer’s financing. It does mean, however, that the Seller should understand what information concerning the property the Buyer will need to produce to its lender to obtain financing, and that Seller should be prepared to fully cooperate with the Buyer in all reasonable respects to produce that information.

Basic Lending Criteria

Lenders actively involved in making loans secured by commercial real estate typically have the same or similar documentation requirements. Unless these requirements can be satisfied, the loan will not be funded. If the loan is not funded, the sale transaction will not likely close.

For Lenders, the object, always, is to establish two basic lending criteria:

1. The ability of the borrower to repay the loan; and

2. The ability of the lender to recover the full amount of the loan, including outstanding principal, accrued and unpaid interest, and all reasonable costs of collection, in the event the borrower fails to repay the loan.

In nearly every loan of every type, these two lending criteria form the basis of the lender’s willingness to make the loan. Virtually all documentation in the loan closing process points to satisfying these two criteria. There are other legal requirements and regulations requiring lender compliance, but these two basic lending criteria represent, for the lender, what the loan closing process seeks to establish. They are also a primary focus of bank regulators, such as the FDIC, in verifying that the lender is following safe and sound lending practices.

Few lenders engaged in commercial real estate lending are interested in making loans without collateral sufficient to assure repayment of the entire loan, including outstanding principal, accrued and unpaid interest, and all reasonable costs of collection, even where the borrower’s independent ability to repay is substantial. As we have seen time and again, changes in economic conditions, whether occurring from ordinary economic cycles, changes in technology, natural disasters, divorce, death, and even terrorist attack or war, can change the “ability” of a borrower to pay. Prudent lending practices require adequate security for any loan of substance.

Documenting The Loan

There is no magic to documenting a commercial real estate loan. There are issues to resolve and documents to draft, but all can be managed efficiently and effectively if all parties to the transaction recognize the legitimate needs of the lender and plan the transaction and the contract requirements with a view toward satisfying those needs within the framework of the sale transaction.

While the credit decision to issue a loan commitment focuses primarily on the ability of the borrower to repay the loan; the loan closing process focuses primarily on verification and documentation of the second stated criteria: confirmation that the collateral is sufficient to assure repayment of the loan, including all principal, accrued and unpaid interest, late fees, attorneys fees and other costs of collection, in the event the borrower fails to voluntarily repay the loan.

With this in mind, most commercial real estate lenders approach commercial real estate closings by viewing themselves as potential “back-up buyers”. They are always testing their collateral position against the possibility that the Buyer/Borrower will default, with the lender being forced to foreclose and become the owner of the property. Their documentation requirements are designed to place the lender, after foreclosure, in as good a position as they would require at closing if they were a sophisticated direct buyer of the property; with the expectation that the lender may need to sell the property to a future sophisticated buyer to recover repayment of their loan.

Top 10 Lender Deliveries

In documenting a commercial real estate loan, the parties must recognize that virtually all commercial real estate lenders will require, among other things, delivery of the following “property documents”:

1. Operating Statements for the past 3 years reflecting income and expenses of operations, including cost and timing of scheduled capital improvements;

2. Certified copies of all Leases;

3. A Certified Rent Roll as of the date of the Purchase Contract, and again as of a date within 2 or 3 days prior to closing;

4. Estoppel Certificates signed by each tenant (or, typically, tenants representing 90% of the leased GLA in the project) dated within 15 days prior to closing;

5. Subordination, Non-Disturbance and Attornment (“SNDA”) Agreements signed by each tenant;

6. An ALTA lender’s title insurance policy with required endorsements, including, among others, an ALTA 3.1 Zoning Endorsement (modified to include parking), ALTA Endorsement No. 4 (Contiguity Endorsement insuring the mortgaged property constitutes a single parcel with no gaps or gores), and an Access Endorsement (insuring that the mortgaged property has access to public streets and ways for vehicular and pedestrian traffic);

7. Copies of all documents of record which are to remain as encumbrances following closing, including all easements, restrictions, party wall agreements and other similar items;

8. A current Plat of Survey prepared in accordance with 2011 Minimum Standard Detail for ALTA/ACSM Land Title Surveys, certified to the lender, Buyer and the title insurer;

9. A satisfactory Environmental Site Assessment Report (Phase I Audit) and, if appropriate under the circumstances, a Phase 2 Audit, to demonstrate the property is not burdened with any recognized environmental defect; and

10. A Site Improvements Inspection Report to evaluate the structural integrity of improvements.

To be sure, there will be other requirements and deliveries the Buyer will be expected to satisfy as a condition to obtaining funding of the purchase money loan, but the items listed above are virtually universal. If the parties do not draft the purchase contract to accommodate timely delivery of these items to lender, the chances of closing the transaction are greatly reduced.

Planning for Closing Costs

The closing process for commercial real estate transactions can be expensive. In addition to drafting the Purchase Contract to accommodate the documentary requirements of the Buyer’s lender, the Buyer and his advisors need to consider and adequately plan for the high cost of bringing a commercial real estate transaction from contract to closing.

If competent Buyer’s counsel and competent lender’s counsel work together, each understanding what is required to be done to get the transaction closed, the cost of closing can be kept to a minimum, though it will undoubtedly remain substantial. It is not unusual for closing costs for a commercial real estate transaction with even typical closing issues to run thousands of dollars. Buyers must understand this and be prepared to accept it as a cost of doing business.

Sophisticated Buyers understand the costs involved in documenting and closing a commercial real estate transaction and factor them into the overall cost of the transaction, just as they do costs such as the agreed upon purchase price, real estate brokerage commissions, loan brokerage fees, loan commitment fees and the like.

Closing costs can constitute significant transaction expenses and must be factored into the Buyer’s business decision-making process in determining whether to proceed with a commercial real estate transaction. They are inescapable expenditures that add to Buyer’s cost of acquiring commercial real estate. They must be taken into account to determine the “true purchase price” to be paid by the Buyer to acquire any given project and to accurately calculate the anticipated yield on investment.

Some closing costs may be shifted to the Seller through custom or effective contract negotiation, but many will unavoidably fall on the Buyer. These can easily total tens of thousands of dollars in an even moderately sized commercial real estate transaction in the $1,000,000 to $5,000,000 price range.

Costs often overlooked, but ever present, include title insurance with required lender endorsements, an ALTA Survey, environmental audit(s), a Site Improvements Inspection Report and, somewhat surprisingly, Buyers attorney’s fees.

For reasons that escape me, inexperienced Buyers of commercial real estate, and even some experienced Buyers, nearly always underestimate attorneys fees required in any given transaction. This is not because they are unpredictable, since the combined fees a Buyer must pay to its own attorney and to the Lender’s attorney typically aggregate around 1% of the Purchase Price. Perhaps it stems from wishful thinking associated with the customarily low attorneys fees charged by attorneys handling residential real estate closings. In reality, the level of sophistication and the amount of specialized work required to fully investigate and document a transaction for a Buyer of commercial real estate makes comparisons with residential real estate transactions inappropriate. Sophisticated commercial real estate investors understand this. Less sophisticated commercial real estate buyers must learn how to properly budget this cost.

Conclusion

Concluding negotiations for the sale/purchase of a substantial commercial real estate project is a thrilling experience but, until the transaction closes, it is only ink on paper. To get to closing, the contract must anticipate the documentation the Buyer will be required to deliver to its lender to obtain purchase money financing. The Buyer must also be aware of the substantial costs to be incurred in preparing for closing so that Buyer may reasonably plan its cash requirements for closing. With a clear understanding of what is required, and advanced planning to satisfy those requirements, the likelihood of successfully closing will be greatly enhanced.

Commercial Real Estate Loans

For those who are considering buying or leasing a property to run their business, perhaps they have come across commercial real estate loans. Many of these loan programs not only help business owners to purchase a business property but also find the right locations. Well, every business owner would want to have their offices located on a safe and good neighborhood. They also want places that are convenient for their customers.

As its name suggests, you can’t use commercial real estate loan to buy personal property for yourself or your family; it’s to be used for business purposes. Some people use commercial real estate loans to purchase a storefront; others use it to purchase business offices as their company headquarters where they could have physical addresses for potential customers to visit or buy products.

However, you can use commercial real estate loans to purchase many different types of commercial properties such as shopping mall, healthcare facilities, manufacturing facilities, motels and automobile dealerships just to name a few. Any piece of property can be considered commercial property if used to generate incomes.

Few things you should keep in mind when you’re researching or looking out for commercial real estate loans; the most important one is the interest rate as this one will affect many aspects of your business. Firstly, The higher the loan rate, the higher the monthly payments you need to bear. It will take some efforts and research on your part to find the best interest rates.

Another aspect you need to consider when taking out commercial real estate loan is the prepayment percentage. You’ll need to pay a down payment at closing. This is usually set at 5-10 percentage points of the overall value of the loan; it varies between banks and loan programs. Try to find the lowest down payment percentage as it will save you some money upfront for your business needs.

Another important aspect many business owners would consider is whether to buy or lease a property to run their business. There are many factors that can influence their decisions. Some questions to contemplate include do I have enough cash outflow to buy the property? Can my business make enough money to benefit from the tax shelter? Do I need a bigger place to cater for my business growth? Is the market value of commercial properties rising or falling?

Buying commercial property to run your business is an important investment. Hence, it should be consider carefully; if you’re confident that your business needs a proper place to grow, then the commercial real estate loans might be good option for you.

Investing Made Easy With Real Estate

Real estate loans will be of much financial help for investing in business. Taking a loan to purchase a property is an excellent idea as the property can earn you considerable amount of profit in months. Real estate seems to be a profitable business if managed properly. A perfect business plan is necessary for applying a loan because the banks offering loans needs a clear idea of the management strategies, partnership and infrastructure details regarding the property. Most transactions are made using mortgage loans because it is now easy to qualify for the loan. Only a small amount is needed as payment to the bank for you to secure loans.

Mortgage loans can be obtained with low or common interest rates which will be easy to pay as installments. Make sure to use the income from rent for paying your debts. Also the rental price should be higher than the interest rates and so with the rise in rental income within months, you can get a considerable amount as profit which can be used for paying your loans. Later selling the property can help the principal sum of loan get settled. Investing in land is a good and profitable option for developing your business. Tax deductions are allowed for the interest payments for housing loans and also for second loans in investing.

Have a clear idea about selecting a property because people get cheated easily in business. You should be aware of the problems that could arise in future and the complete infrastructure details of the property because the tenants opt for a place which makes their stay much comfortable with all basic needs and with no issues related to the maintenance. Investors should concentrate in all these necessary factors before buying the land. The future plans and steps for maintenance should be managed by the real estate investors.

If you have the ability to pay the mortgage loans, then you can give a try in this smarter business. Real estate business involves large amount of money and so financing cannot always be done with your own resources. Hence the choice of a real estate loan or some private financing is much essential. Before opting for a financing service, calculate the needs and expenses related to it. Well designed business plan and the estimated project costs are the preliminary data to be considered in real estate investing before applying for a loan. Expenses like construction fee, maintenance fee and the overall costs should be effectively noted earlier before starting up with this business. Investing in real estate is the smarter idea of developing your business because you can wait with patience for a better rise in income and also will be one of the best retirement planning.