As published in Scotsman Guide's Commercial Edition, March 2009.
There is no shortage of real estate news these days. You'll find an avalanche of information on the Internet, television and radio and in newspapers and magazines.
But is all of it true? And more important for commercial brokers and their clients, how does it relate to the income-property business?
If you dig deeper into the mainstream news, you'll find hits and misses. Hits are accurate and relevant to the commercial business; misses are not. Understanding what applies to the commercial mortgage industry, as well as what doesn't, can help brokers succeed in finding funding for their clients in today's market.
Consider the following common news themes that you or your clients may come across -- and whether they are hits or misses.
Miss: Income-property loans are not available from banks, thrifts and other institutional lenders.
Many institutions still are lending actively. Historically speaking, interest rates are still low and terms are reasonable. Certainly, many lenders have left the market or reduced the number of loan programs they offer, but good loans are available to good borrowers for good projects.
Miss: Underwriting standards are too rigid to permit deals to get funded.
Indeed, many lenders have tightened their underwriting guidelines. Market participants who understand what lenders are looking for, however, can succeed. The essence of successful borrowing is to match deals with the right lenders.
Today, most lenders look for positive cash flow. As such, break-even or negative-debt-service transactions are hard to place. Investors who seek to purchase properties that produce positive cash flow likely will find a loan for their deals.
In addition, providing a comprehensive, professional executive summary with your loan is crucial. The lenders that are still making loans are flooded with deals, and they don't want to spend a lot of time trying to figure out what someone seeks.
Concise initial packages can help lenders understand the transaction, see if it fits their current requirements and make an intelligent initial decision. Each executive summary also should include at least six clear color photos of the property -- one each that looks at the subject from all four sides and two street scenes from the entrance (looking "up" and "down" the street).
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