March 2024 – Valerie "The Coach" Adams

The lending terms offered by banks and other financial institutions for investment property financing fluctuate with the real estate market. For example at the turn of the century, lenders were extremely competitive and aggressive with financing. Not only were residential borrowers receiving unprecedented terms for loans but investors were also getting great deals. Now since the banks have tightened the reins on residential lending, financing is much more conservative for investors as well.

For the first time investor, lenders will want to see some type of equity investment before making a loan. At a minimum they will want to see some kind of sweat equity. This is because if a borrower can no longer make the loan payments and the lender must foreclose the equity investment helps preserve the lender’s security and interest in the loan. To illustrate this point let’s consider a nice round loan amount such as a thousand dollars.

Now let’s assume that a tract of land costs $10,000. For a new investor, a lending institution may want to see an equity investment between 20 to 50% this means that you as the investor would need to invest $2,000-$5,000 before the lender would provide the investment property financing.

These terms are beneficial to the bank in two ways – first if the bank has to take back the property they only have to sell it for $5,000 to recoup their cost and since the property should be worth $10,000 or more, the bank sees this deal as an acceptable risk. Second, if you, the investor, have committed a portion of your own resources to the deal you’re less likely to walk away.

This example was very simplistic but helps illustrate the lending logic of a loan officer. For normal size investment property financing deals, your equity investment may not have to be in the form of cash. Depending on the structure of the deal you could offer additional property, life insurance policies or stocks as collateral or even JV Partnership deals. The bottom line is that your loan officer will want to see your financial commitment to the deal.

Also the larger your equity investment in the property, the lower your interest rate will be because of diminished risk of loss due to foreclosure. The amount of equity your lender may require for your investment property financing deal will depend on your credit score, financial statement and history with the lender. Although your stellar credit scores show that you’re responsible personally, most lenders will still require a financial statement showing your assets and liabilities and a cash flow statement showing your average monthly income. Any weaknesses in your financial statement and you can expect a higher equity investment requirement. A lender wants to know that you’re not living paycheck to paycheck and can afford to make mortgage payments even if the property is vacant for a few months. Learning alternative funding methods will also help you to purchase investment properties without the need for a bank.

If you want a better strategic approach to ensure you are on the right path reach out to my assistant Ashley at 951-268-4305 and let’s set up an appointment for you to meet with Coach Val Adams.

See you at the top,

CME Staff

951-268-4305

Offices located in: Atlanta, Chicago, Corona

Investment Portfolio and expertise since 2017

www.RecruitLikeVal.com

Visit us on LinkedIn – https://www.linkedin.com/in/valthecoach/

If you found value in this article please follow our blog for updates.

If you are considering commercial property investment opportunities the following information may be of importance to you.

Commercial investment opportunities include those in retail, industrial, and office space each has its own unique set of circumstances you need to be aware of to compare opportunities and get the best deals.

You need to research these investment opportunities and get the vitals on rates for rent that are comparable to other rental spaces in the area. Offering good lease terms on a well managed property will attract the type of tenants you really want.

You will also need to take into consideration what it will take to run the property. Will the rent of the property cover the costs of maintaining the building? If other properties in the area are charging more for rent than you plan to, you need to ask yourself if the rent you are charging will offset the costs of maintenance. Carefully researched comps in the are should be your guide.

Other aspects of commercial property investment is location and availability of adequate parking. Is there adequate street parking or is there a parking lot? A business that is not easy to get to will not sustain a good customer base and will eventually fail. As an investor in the commercial property you need to make sure that the location is conducive to maintaining a successful business.

Along with the location and parking is the aspect of accessibility by public transportation. Is the property on a bus route so people without their own form of transportation can get to the property? How are the roads leading up to the property? Are they in good repair or do they need work? You could check with the county road commissioner and see if road construction is slated for that area in the near future or not.

Looks and functionality are important in investing also. The property needs to flow from the front door to the back of the store. Tenants will look for this functionality and if it is there it will attract them to signing a rental agreement with you.

If someone were interested in renting some commercial property and went to a brand new building. The owner offered to basically build to suit and said the prospective renter had to put up ten thousand dollars to finish the building. I do not think that is a proper way to conduct business. The building should have been finished and all that should have been negotiated was the rent for the space they were interested in. The owner lost a potential renter because what they were “offering” was not appealing in the least.

Before investing in a commercial property make sure the utilities and other amenities are in good working order. Update these services as necessary so they will stay in good working order. Also when purchasing commercial real estate property we also need to consider creating value add and those concessions that will give us cash in pocket at closing.

A commercial property investment is as risky as any other type of investment and these tips will ensure you make an informed decision as to whether or not you want to venture into commercial investing.

The best approach to ensuring the right investment vehicle for you, using statistical data from today’s market trends is to consult with a mentor who can walk you through these steps and pre-analyze deal construction with you. Book your appointment now.