How do CRE lenders calculate "net-worth" to qualify post deal?

Question

I'm just getting started in CRE research and am focusing on understanding traditional financing. From what I understand so far, the asset matters more than the borrower's income BUT many lenders have a "net-worth" requirement. Curiously, if an investor has LLCs with business credit such as credit cards, LOCs, etc. when the lender pulls the borrower's credit do they also pull the LLC debts to calculate personal "net-worth" or do they just use FICO data, etc?

Steve Hall · Answer

@John Acheson

Your single member LLC's net worth is pass thru to you. A SMLLC's assets are yours, as are it's liabilities. Sounds like you are referring to a non-recourse loan, like a Fannie Mae or Freddie Mac Small Balance Loan. If so, then your FICO score is irrelevant.

Unlike when qualifying for "accredited" status, most lenders include the equity in your home as part of your net worth.

Also worth mentioning, if your net worth is 800k, you could partner/JV with someone whose net worth is $700k and together you could get a $1.5m loan.

Stephen Vanvliet · Answer

I was told by John broussard my 890k paid off house and 20 cars 300k in equipment and almost a million in equity didn't matter ..  that's not what banks look at.   The shit I believed after a stroke. He even got me to sign a no recorse and have my house and shop as collateral... Got 13.5% intrest and told I needed the money quick.. I was already approved at 10,% no payments for a year.   He told me 20year6% he has it handled.    For months .  Right before closing 13.5%

John Acheson · Answer

Thank you both for your detailed replies. How can a newbie with low net worth & low income get started in CRE? Does it help to have a seasoned LLC that already has business credit? Is partnering really the only way? Most of the advice I'm seeing online focuses on apartment buildings but I'm not attracted to raising rent as a strategy and managing tenants & toilets as a job. I would prefer to make a business plan to target a small grocery store property.

Mike Burkett · Answer

@John Acheson  A lender gets you net worth from a personal financial statement you submit to them.  It is a balance sheet of all of your assets and liabilities including both personal and business.  On the asset side you would show assets you personally own including houses, cars, furniture, life insurance policies, etc.  If you have LLC's you would include assets of the LLC's also.  On the liability side, you include outstanding personal liabilities like mortgages, car loans, and credit card balances.  You do not include unused available credit on credit cards.  For the business liabilities, you include outstanding liabilities of the LLC's.  You add up all the assets and liabilities then subtract the liabilities from the asset.  That equals your net worth.  The lender will then use credit reports and other available sources to verify those numbers are correct.

How do CRE lenders calculate "net-worth" to qualify post deal?

Most Popular Reply