Is it easier or harder to buy commercial property?
[deleted]
[{"id": "fpol2wf", "text": "A commercial property under $1 million usually does not include *all* the underwriting bells and whistles larger CRE loans require, but there are still a lot more bells and whistles than residential. \n\nYou will be scrutinized, so will the tenant, especially given the current market conditions with retail. If it\u2019s a publicly traded \u201ccredit\u201d tenant (Starbucks or similar), the odds of securing a loan aren\u2019t bad. If it\u2019s a local biz tenant and this is your first CRE loan and you don\u2019t have personal cash flow to float the loan for up to 12 months, oof, not impossible but highly unlikely.", "replies": [], "depth": 1}, {"id": "fpolmyb", "text": "The loans are different. Commercial mortgages differ from residential in these ways:\n\n* Rates are usually higher\n* Rates vary more from bank to bank\n* Loan terms are typically 5, 7, or 10 years, after which you owe the full balance (that's when you refinance or sell).\n* Loan amortization periods (the amount of time it would take to pay it off if not for the shorter loan maturity) are typically 20, 25, or 30 years.\n* Loans can be Recourse - meaning you owe the full balance from your personal wealth if the loan defaults and the property's value doesn't cover the remaining loan principal.\n* Prepayment penalties - it's usually not free to pay down or pay off your loan ahead of schedule.\n* Underwriting is primarily tied to the income of the property, second to the borrower's track record, and only third to the borrower's finances. Your credit score doesn't qualify you.\n* It's more common to use a broker/platform to find financing because of the variability of all the rates and terms from lender to lender.", "replies": [], "depth": 1}, {"id": "fpomsy0", "text": "Community banks are your best bet for this size.  Unlike residential, they are not standardized.  Get a few term sheets from local banks and it will likely be 65-75% loan to value.  The banks will want to see a decent credit score and history of other real estate ventures and you will  have to  sign personally.  But they will care more about the property itself.  Does it provide them enough coverage of debt service from the rent and value if they have to foreclose.", "replies": [{"id": "fpqjw1x", "text": "This is the right answer. Also try local credit unions. Big branch banks won't do it. Lots of nationwide non-bank lenders out there too.", "replies": [], "depth": 2}], "depth": 1}, {"id": "fpotyo0", "text": "$/sf, NNN\n\nincome approach vs sold price approach, cash flow. interest is slightly higher.", "replies": [], "depth": 1}, {"id": "fppflk9", "text": "What are the businesses in there?  If it's a hair a salon, good luck.  Payday loan or a carryout and delivery pizza place and you're golden.", "replies": [], "depth": 1}, {"id": "fppl3lt", "text": "Inspect the lease. Value of any income producing retail properties is held by strong leases. 5-10 year term with annual increases, no unreasonable exit clause, you should be in good hands. \nLook at your areas cap rate, make sure you're getting a fair deal.  \nCheck for any defferes maintenance, as this will be your responsibility if you take it on and will affect your bottom line.\n\nGood luck!", "replies": [], "depth": 1}, {"id": "fpq5716", "text": "Harder.  You have to convince some people that you know what you\u2019re doing.", "replies": [{"id": "fpr25ho", "text": "Or be rich. If you're already rich you can be a moron. This is American.", "replies": [], "depth": 2}], "depth": 1}, {"id": "fqd66lk", "text": "To specifically answer your question, the biggest 3 are:\n\n1 - interest rate is going to be higher, and depend on the credit of the tenant\n\n2 - balloon is a part of life, and often enough 5-10 yr balloons. FORGET about 30 year loans or ammoritization schedule when calculating cash flow\n\n3 - down payment of 25-30%\n\nThere's quite a list of additional things, but those are the biggest", "replies": [], "depth": 1}]