Commercial Lending
Los Angeles, CA 路 Member since 2011 路 10 posts 路 1 vote
Hi,
1. I make 40k a year, would I be qualified to get a commercial loan?
2. How is commercial loan different than personal loan?
3. I already own a house, mortgage is 1400 per month and someone is paying 1600 and I want to buy an apartment building is it possible with my salary of 40k?
4. How do people normally do this?
5. In your opinion is it better to buy houses and rent it out or buy commercial property like an apartment building and rent it out or buy an office and rent it out? What do you guys think is more profitable?
6. Is commercial loans really hard to get?
Thank you again.
Judy
A key metric for commercial lenders is the DSCR - debt service coverage ratio. This can also go by various other similar names. This is the net operating income divided by the P&I payment.
To carry on with your example, if you buy a million dollar property with 25% down and get a 6% 20 year loan, your monthly payments will be $5,373.23. A lender might want to see a DSCR of 1.3. That means the NOI must be $5,373.23 * 1.3 = $6,985.20. If its a well run building that is stabilized (i.e, vacancies are about what you would expect them to be in the area) that would translate into gross scheduled rents of about $14000 a month.
If the rents were less, which would make the NOI less, lenders would lend less. If the price is fixed, that means a larger down payment.
That's not to say that would be a good deal. With those number you would have cash flow of $1,611.97 a month or $19,343.64 a year. And you have $250,000 invested. That's only a 7.7% cash on cash return.
The property you already have isn't a very good deal, either. By a $1400 mortgage payment I assume that includes taxes and insurance. When you apply for another loan, the lender will take your 75% of your rent, less the mortgage payment. In your case, 75% of the rent is $1200. Subtract the mortgage payment and you're in the hole $200 a month. That's 6% of your gross monthly income. That makes it harder for you to qualify for a new loan.
Your personal income may not be too big a deal for a commercial loan, but the lender will want to see a good DSCR, a good down payment, and experience.
Hi,
1. How hard is it to get a commercial loan, if i want to buy a $1million appartment building? How much income must I make and how much money must I have down? How do most people do it I dont think people who buy $1million have 250k salary do they ? what kind of salary must you make on your tax return in order to buy that kind of building? And how much must you put down? I dont think donald trump had that kind of income when he bought his hotels when he first started. What credit do they check to get large commercial loans? How do people do this?
Thank you.
Judy
Judy, one key factor is how much of your own money you have to contribute.
Most lenders will lend around 75% on a commercial property ... some more, some less. That means that the buyer/borrower will have to come up with around 25%.
If the borrower have experience and success in operating a particular type of property, the borrower may get a greater LTV.
If the Net Operating Income from the property is stellar, the borrower may get a greater LTV.
There will also be other expenses prior to closing on a loan and at the closing table. Certainly the borrower will need to pay for an appraisal and maybe also pay for a Phase I environmental report and maybe even market studies.
The borrower may need to pay points at closing and other closing expenses as well.
I hope this helps clarify the amount you will have to contribute if you pursue a commercial property.
A key metric for commercial lenders is the DSCR - debt service coverage ratio. This can also go by various other similar names. This is the net operating income divided by the P&I payment.
To carry on with your example, if you buy a million dollar property with 25% down and get a 6% 20 year loan, your monthly payments will be $5,373.23. A lender might want to see a DSCR of 1.3. That means the NOI must be $5,373.23 * 1.3 = $6,985.20. If its a well run building that is stabilized (i.e, vacancies are about what you would expect them to be in the area) that would translate into gross scheduled rents of about $14000 a month.
If the rents were less, which would make the NOI less, lenders would lend less. If the price is fixed, that means a larger down payment.
That's not to say that would be a good deal. With those number you would have cash flow of $1,611.97 a month or $19,343.64 a year. And you have $250,000 invested. That's only a 7.7% cash on cash return.
The property you already have isn't a very good deal, either. By a $1400 mortgage payment I assume that includes taxes and insurance. When you apply for another loan, the lender will take your 75% of your rent, less the mortgage payment. In your case, 75% of the rent is $1200. Subtract the mortgage payment and you're in the hole $200 a month. That's 6% of your gross monthly income. That makes it harder for you to qualify for a new loan.
Your personal income may not be too big a deal for a commercial loan, but the lender will want to see a good DSCR, a good down payment, and experience.
One other requirement I'm seeing with commercial is a net worth requirement, especially if you had minimal cash in the deal. A Fannie/Freddie multi family loan will require you (and your partners) to have a net worh equal or greater than e value of the loan. Fannie/Freddie will allow 20% down on a deal... For most commercial loans , they will ask for your personal financial statements and ask about your experience. Generally, your credit score isn't a factor as much as how much experience and money you have in addition to how good the deal is.
Lots of people don't remember or care to acknowledge that Donald Trump started as a rich man. He is the son of one of New York's top real estate developers. He made most of his money by buying smart and with other people's money, whether it was smart partnerships or a banks.
If your interest is in commercial property and you don't have cash for a deal, your best bet is creating the deal. Check out the syndication threads here for more info.
A key metric for commercial lenders is the DSCR - debt service coverage ratio. This can also go by various other similar names. This is the net operating income divided by the P&I payment.
To carry on with your example, if you buy a million dollar property with 25% down and get a 6% 20 year loan, your monthly payments will be $5,373.23. A lender might want to see a DSCR of 1.3. That means the NOI must be $5,373.23 * 1.3 = $6,985.20. If its a well run building that is stabilized (i.e, vacancies are about what you would expect them to be in the area) that would translate into gross scheduled rents of about $14000 a month.
If the rents were less, which would make the NOI less, lenders would lend less. If the price is fixed, that means a larger down payment.
That's not to say that would be a good deal. With those number you would have cash flow of $1,611.97 a month or $19,343.64 a year. And you have $250,000 invested. That's only a 7.7% cash on cash return.
The property you already have isn't a very good deal, either. By a $1400 mortgage payment I assume that includes taxes and insurance. When you apply for another loan, the lender will take your 75% of your rent, less the mortgage payment. In your case, 75% of the rent is $1200. Subtract the mortgage payment and you're in the hole $200 a month. That's 6% of your gross monthly income. That makes it harder for you to qualify for a new loan.
Your personal income may not be too big a deal for a commercial loan, but the lender will want to see a good DSCR, a good down payment, and experience.
This maybe 8 years old but I find the information still really valuable. I appreciate you taking the time providing quantifiable facts. It paints a better a picture and makes it easier to understand. Your last sentence is uplifting coz it says it's not impossible 馃憤