Monthly Archives: June 2017

Real Estate Loan Prequalification Letters For Investment

In nearly every city or town in America there are a few different types of real estate agents and brokers. Some of these professionals deal primarily in single family homes for individuals, others deal with commercial real estate transactions, and yet a third type deal primarily in investment real estate. If you are looking to invest in the real estate market, you will want to find a real estate agent or broker who deals with investment properties and the unique needs of real estate investors on a day-to-day basis.

The Investment Real Estate 

The reason for dealing with a realtor who specializes in investment properties and transactions specifically with investors is simple; they understand what we do for a living and how we handle our transactions differently than other real estate buyers.

For example, real estate loan prequalification letters have become the norm these days for anyone who wants a realtor to show them available property. And, if you think about it, this does make sense for the realtors. Why should they bother spending their valuable time with buyers who cannot ultimately qualify for a loan? They don’t want to. So, they pretty much all require home loan prequalification before they will deal much with a buyer these days.

The good news is that for those of us who are investors, and who often use creative financing in one form or another on our deals, we are able to do business with the investment real estate agents without having to produce mortgage loan prequalification letters and lots of other documentation. All we have to do is let them know that if they can find us the deal, then we can get it financed one way or another.

Hard Money Lenders and Real Estate Loan Prequalification Letters

If you will be using hard money for your investment transaction, then it is possible for you to get a hard money lender to write you a mortgage loan prequalification letter. The hard money lenders deal with realtors as well, and they understand that some of them can be pretty insistent on mortgage loan prequalification.

Ultimately, if you deal with an investment realtor and try to avoid those who do not thoroughly understand our business, you should be able to minimize your document and prequalification headaches.

Commercial Real Estate Loans

Commercial Real Estate Loans are very popular these days, and it’s not hard to understand why. They are currently appreciating at roughly 11% per year. In some cases the property doubles in value every 5 years or so, it’s not uncommon. So even if you acquire a Hard Money Commercial Loan at 17%, which is the high end. You can get a Hard Money Commercial Loan in many cases as low as 11%. You can see how this appreciation even at these high rates would offset the high interest.

What are the Peculiarities of Commercial Real Estate Loans?

They Offer Continuing Fixed Rates for the life of the loan. That is until you decide to get rid of the property or pay it off in full. They are a Lucrative Investment Vehicle that is backed by Real Estate. You can use these loans to make a Organization or magnify your current Organization. These loans can also serve as a method to refinance an existing property.

Whether you’re looking for Commercial Mortgage Real Estate Loans Washington State or Washington DC Commercial Real Estate Loans, there is bound to be a solution that will fit your personal and business needs.

You have several options, either a Hard Money Commercial Loan, a Conventional Loan or a Government Regulated Guaranteed Accommodation. In most cases you can borrow up to 80% of the LTV or Loan to Value proportion. This is a measure of how much the property is currently worth. The standard payback time frame for these types of loans is most frequently 6-36 months.

Types of Commercial Real Estate Loans:

All you need to remember about the main types of loans is that there are Private Loans which are otherwise known as Hard Money Commercial Loans. Although Private Loans are simpler to obtain, and the process of applying is quite simple, you will get nailed with a higher percentage rate.

There are 3 contingencies you should do antecedent signing for a Commercial Real Estate Loan:

1.) Have a Competent attorney you hire pore over the contract. Don’t depend on the sellers negotiator to cover your tail. A good attorney will let you know of anything in the contract that may not be in your favor.

2.) Always go for a fixed rate loan over a variable rate. This will shield you from unexpected rises in your monthly payments in the future. If your predictable income is lower than what these rising payments can materialize in the future, you can potentially end up in a crunch.

3.) Conduct an Interview of the money lender. Make sure you write a comprehensive list of questions they can answer. The conversation does not need to be in person. There’s nothing at all wrong with an over the phone interview, being that many lenders offer loans Nationwide Retail loans.

Tax Benefits

When a parcel of Real Estate increases its value, you can simply take cash out and use that cash to purchase more assets to increase your wealth even more. You won’t have to pay taxes on any amount you acquire as a result of the refinance as long as it’s used to purchase more business assets. Anything you spend for personal use you’re responsible to pay taxes on. So you’re secured in the aspect that you’re obtaining another asset which can be resold as well.

Real Estate Loans

Commercial real estate loans, and the industry in general, have gone through a tremendous amount of volatility in 2009. Huge banks have gone out of business and many more have ceased lending. Many of the banks that are still lending have created such conservative programs that very few borrower can even qualify. Many of those that can qualify won’t accept the terms as they are to harsh. Borrowers have become baffled as they take their perfectly good loan request to their previous sources only to hear “no and no and no…”

The market is bad, you know this. We estimate that literally 80% of all previous banks and lenders are either out of business or are not lending. For example the conduit market was down 98% in 2008 compared to 2007.

However, there still are commercial real estate loan options out there. None of them are perfect but a few of them are viable. For folks that operate their small business out of their commercial building, or at least 51% of it, they will have some of the reliable loans in the nation.

These programs are government guaranteed and go beyond just SBA loans. As you probably guessed, because the government has step up and further guaranteed the loans, it makes it a much safer, and attractive for the banks to take on the risk of a new loan.

Further the secondary market for these types of loans has become stronger, year to date. We are currently back up to about 60% of where we were in 2007 (Up from about 10% of where we were in the beginning of the year). This is where banks sell mortgages to one another. So the returning of the secondary market and the stability of having the government backing has kept this segment of the industry alive.

As far as terms, by far the biggest benefit of these loans is high levels of financing available. For example, most conventional lenders will now only go up to 60% loan to value, while most of the government programs will still go up to 80% – 85% on refinances or 80% – 90% on purchases. This high level of financing makes a huge difference in a market such as this where property values are declining. Many conventional deals are getting killed as the bank lowers there loan to value guidelines and at the same time, property values decline.

Another benefit is the amortization schedule offered. Government programs are typically amortized over 25 to 30 years while most banks are reducing their amortization schedule to 15 or 20 years. The issue here cash flow for the borrower. The difference in payment between a 15 year amortization schedules vs. a 25 year is often 20 – 25%. Most businesses need to keep as much cash flow in their operation as possible. Aggressively paying down their commercial real estate loan is not as important as having enough cash to pay the rest of their bills.

The current market is frustrating for all involved. However, commercial real estate loans are still closing and often loan requests that keep getting declined are often fundable, if in the hands of the right lender/bank. Keep working.

Commercial Real Estate Loan Basics

The most challenging aspect in commercial borrowers reacquainting themselves with the “basics” for commercial mortgage loans is likely to be the need to not only focus on the “old basics” but also on numerous “new basics” created by a massive shift in commercial loan services. There have been surprising difficulties and changes for small business financing, and this is particularly illustrated by the current commercial banking climate for commercial mortgages. Because the issues currently impacting commercial real estate loans are so widespread and effecting business borrowers everywhere, it is appropriate for business owners to “get back to basics” before they finalize any new business loans.

The outcome that effective commercial real estate financing is becoming harder to find is the biggest net result of the changes and challenges involving commercial mortgages. This observation applies equally to new commercial loans for buying a business and commercial refinancing efforts. Very few commercial lenders are providing a candid assessment of their inability to provide commercial mortgage financing for a wide variety of small businesses, and this makes the challenge almost insurmountable.

The need for small business owners to be prepared for an extremely difficult commercial lending environment is an intentional emphasis in this discussion. Obtaining commercial mortgages can no longer be taken for granted by small businesses because of the recent ineffectiveness that prevails with commercial banking. Large corporations continue to have more leverage and resources for dealing with their banks. In a mirror image of that situation, small business borrowers are increasingly likely to have less resources and leverage when negotiating with any bank.

Fewer banks providing this kind of financing to small businesses is one inescapable “new basic” for commercial real estate loans. It will frequently be even more difficult to secure a commercial mortgage from a new and unfamiliar lender if the current bank for a business is not willing to help. Nevertheless that is a likely funding scenario that currently confronts business borrowers everywhere. A particularly growing (and annoying) trend as noted above is that when banks have reduced their commercial loan activities, they are not generally being straightforward in telling prospective commercial borrowers. Banks are more intertwined than ever with political influences after a large number of them received government bailouts that helped to keep them operating. Very few banks have actually followed through on the promise to return to a “normal” level of lending once they received bailout funding.

A reduced amount of leverage for most small business loans is another “new basic” that seems likely to prevail. Needing larger down payments to buy a business will be one result for borrowers. Especially when combined with decreasing commercial real estate values currently being experienced on a widespread basis, commercial debt refinancing will be more difficult because of the reduced leverage.

We previously published a companion piece describing the need to get back to basics with working capital financing. In terms of the growing challenges with commercial refinancing, the points made in that article are directly relevant to this discussion. Our primary point is that any current effort to refinance a business loan is likely to be much more difficult than expected, and a small business owner might experience obstacles in getting needed cash by refinancing an existing commercial mortgage loan even when they have substantial equity. When commercial real estate refinancing cannot be obtained, commercial borrowers should consider a working capital loan as a “Plan B” solution.