Commercial loan questions, terminology

[Donald S.]

Hi everyone, I had a few questions specifically for Commercial loans. 

If the bank says they'll finance 80% LTV based on their appraisal, that doesn't mean they'd finance 100% of the deal if I got a low enough offer price does it? They'd still cap out at 80% requiring a down payment, i.e. apprasied value 200k, but I'm buying it for 160k, they would still only finance 128k and want me to cover the other 20% correct?

How do people pay off a 5 year balloon, just refinance if you don't have the capital? I suppose this is a way for the bank to make more over time, expecting you to have to refi at a higher interest rate? 

The bank requires rent rolls and operating statements for the property, so I should negotiate the deal 1st, get it under contract contingent on financing and then go to the bank? As opposed to getting a preapproval like I would with a conventional mortgage. 

Anything else I should look for or ask about for commercial loans? 

[Joel Owens]

Typical peak to trough cycles run every 7 to 10 years. I do not like 5 year loans unless you have  a value add component and  know you will be selling off or you can easily refi even at a higher interest rate.

Lenders usually lend the LESS OF appraisal or purchase price based on LTV. Lenders do not want to be over exposed on a property.

So if you have a 2,000,000 purchase price property and appraisal comes in at 2,400,000 they do not go 2,400,000 X.80 = 1,920,000 loan

Now there might be unconventional lenders that might do some things regular lenders will not but rate also is generally much higher to compensate.

The difference in a lender on multifamily doing an 80% ltv loan versus 75% the additional higher rate usually is not worth it. Better to count on 75% LTV and build in your purchase price cap rate. Last thing you want to do is massage debt and LTV to make a cap rate purchase work on a property.

I like fixed 10 year debt. You have flexibility to sell or refi at the time you want plus more time to pay down if you want. If there is a pre-pay penalty you want ti gone by year 5.

Lot's of crap loans out there that lenders want to sell but I do not want them.