Pre-qualify for Loan? - Posted by Dave

import · August 15, 2005, 6:19pm

Posted by Carlos on August 16, 2005 at 22:17:22:

Just adding a little to Ray’s excellent comments, on a recent deal that I did (new industrial condo construction), we shopped a $5.5M loan around to over a dozen banks. We used TWO loan brokers (they each agreed to work with us on a non-exclusive basis), but we actually found the best deal on our own, so we saved the broker’s fees. We were able to really play the banks against each other, and wound up only having to personally guarantee less than half of the loan, plus we got out of having to provide a bond for the contractor, which would have been $100K plus.

The point I’m making is that it definitely pays to shop around. There’s a lot of capital chasing real estate deals, and the banks are hungry. But you can only do this when you have the deal nailed down, because the banks will want to see a lot of specifics before they start haggling.

Good luck,

=Carlos=

import · August 15, 2005, 6:19pm

Pre-qualify for Loan? - Posted by Dave

Posted by Dave on August 15, 2005 at 18:19:46:

Is it helpful to pre-qualify for a commercial loan before I find a property? Is it even possible? If yes, how do I go about doing it?

As you can tell I am new to all this, but I want to begin investing in multi-family and retail properties.

Thanks,
Dave

import · August 16, 2005, 4:47pm

Re: Pre-qualify for Loan? - Posted by ray@lcorn

Posted by ray@lcorn on August 16, 2005 at 16:47:32:

Don,

Commercial real estate finance works somewhat different than residential, and you’re coming at it from the wrong direction. We pre-qualify the lenders, and it’s a buyer’s market.

Loan brokers will tell you that pre-qualification for a commercial deal is wise or even necessary, but for different reasons than you might think. What they are after is a leg up on the competition when it comes to financing your deal. Having all your personal info prior to a deal being on the table gives them first shot at the financing. That’s where they get paid… always follow the money.

The fact of the matter is that without a specific deal to talk about, NO definitive loan terms can be quoted beyond the standard criteria for today’s rates and terms. But you can’t lock in today’s terms, nor will any lender issue a loan commitment, based solely on your personal financials. The property has as much to do with the ultimate loan terms as the borrower does, so save the effort. There is plenty of time to shop the financing during the contract phase of a real deal.

And I do mean shop. Commercial real estate lending is a very competitive arena. As you get active you will find there is a literal sea of capital floating around looking for deals. But not all lenders can do all deal types, so you need to pre-qualify the lender before even thinking about doing a deal with them.

The best source of small commercial real estate loans are independent local banks. But even then you have to shop around. Not every bank understands or desires to do commercial real estate loans, and you’ll have to do some homework before you’ll know what you’re looking for.

You should put some time into developing your investment criteria, a writing a business plan and getting your personal financial affairs in order.

With that done, then you’re ready to have exploratory meetings with the commercial loan officers of those banks. You might share the essential points of the business plan, your personal net worth, and your track record (experience), but you’d better be asking more questions than you answer. You need to know how the bank operates, how they underwrite real estate loans, and make sure they are the right kind of bank before submitting paperwork of any kind. The “right” bank will be the one that can share specific underwriting criteria that match your property criteria and investment goals.

For more on how to get started in commercial real estate, see this article: http://www.creonline.com/articles/art-268.html

ray

import · August 16, 2005, 6:08am

Re: Pre-qualify for Loan? - Posted by Don McClain

Posted by Don McClain on August 16, 2005 at 06:08:43:

You absolutely can pre-qualify for a loan. You can get approved subject to the property. Your credit scores and tax returns will be utilized to determine the max LTV, up to 90%, you can obtain. From there, you pick a property and make sure it cash flows to service the debt, and voila! You got yourself a deal!

Don