Typical financial qualifications for a commercial loan

[Leland S.]

I found a lot to develop a 4 plex for the use of Short Term Rental units I intend to refinance and operate myself after the development. The lender I found gave me a verbal approval for the amount of the loan based on my income and PFS. My income has changed a bit as I had some tax deltas change since last year, however overall my cash position is the same as it was when he verbal approved by "back of the envelope." I didn't get into the details with him on how it was approved, I was just excited I was approved and bought the lot! Now my project quotes are coming back 180k more than estimated, so I'm wondering what are the calculations lenders look for on a rental unit in terms of how much cash/income I need on an income-generating asset. I'm spending a lot of time on the project already and need to know how hard I should be focused on price.

The basics are:

• 4 Unit townhome
• 1.8mm cost total,
• 90% loan at 1/2pt+prime financing during build
• 10% is put down in cash per lender requirement
• Completed Fair Market Value estimated to be 20-25% over cost
• Conservative standard Rent rate would be $4000-4250/mo per unit (this is what the bank must go by for their numbers) - about 0.9% of unit value - NOI $33k/per complex
• Short Term Rental, however, is estimated to bring conservative $35k per unit per annum NOI (so 4x rent), but requires a large 30-35k/unit up front capital expense in furnishing - so the first year is burned
• Market sale option, after expenses, is expected $85k/unit return