Tips for Acquiring Commercial Real Estate
harkins / March 21, 2016
An investment in commercial real estate can be a profitable one. However, acquiring a loan for the purchase can be difficult. Lenders are typically wary of lending large loans as they fear that the borrower may end up defaulting. If you’re planning on investing in commercial real estate and are seeking a loan, there are some things you need to know to be prepared.
Many loans are non-recourse. This means that they are secured by collateral and don’t require any personal guarantees. Despite the fact that collateral is used to protect the lenders interest, lenders still need to know the financial wherewithal of who they are dealing with. As the borrower, it’s up to you to provide that information and highlight any experience you have as an investor or operator of income-producing assets.
Providing a current net worth statement or a resume that demonstrates your track record will make the process go smoother. Lenders will also ask for a background check and credit scores to verify that you’re worth as much as the loan. It’s important that you address any problems on your record, whether you have been forced to relinquish any assets due to bankruptcy or foreclosure. Being up front about these situations will establish trust and reliability with the lender.
If this is your first time making an acquisition like this, you might consider adding some experience to your team. Whether it’s an in-house person or a third party, adding someone with experience will help acquire the loan as lenders typically don’t loan to someone that can’t prove their credibility or reliability through past transactions.
Lenders will want to see that the borrower’s net worth is somewhere around the value of the property and liquidity is around 10 percent of the loan amount after equity has been invested. The lender will want to know that the borrower can handle a potential dip in income without defaulting on the loan. Many borrowers will team up with others so that their combined net worth and liquidity matches the lender’s requirements.
Many lenders today also use credit scores to determine a borrower’s credit worthiness. Anyone applying for a mortgage will have a credit check performed by the lender. Your credit score should be at least 680 or you may have a problem acquiring the loan.
These aren’t all of the processes you’ll need to go through to secure a loan for commercial real estate but it’s a good starting point. If you interested in acquiring or investing in commercial real estate, contact Harkins Commercial Real Estate.
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