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Graduating from single-family and small multi-unit properties to larger properties? As your investing grows, so do your financing needs. Larger properties will not conform to the same loan guidelines as smaller properties. You may find yourself faced with obtaining a commercial real estate loan. Commercial loans cover financing for multi-unit properties over five units, mixed-use properties (like a storefront with apartments above) and any large retail, industrial, or development property. You'll want to shop around for the terms that are right for you. Most commercial loans are amortized at 20 or 25 years, rather than at rates of conventional residential mortgages, which are commonly amortized at 30 years. In addition, many commercial lenders will only finance between 70 and 80 percent of the value of the property. In residential home mortgages, the loan to value (LTV) ratio can be anywhere from 80 to 100 percent, based on factors like credit, and owner occupancy. The interest rates on commercial loans tend to be higher than those on residential property, so plan on paying more in interest on a commercial mortgage. Commercial loan requirements do vary considerably among banks. The lender will carefully consider: Incorporation — Some banks will require that your real estate company be established; one large chain requires incorporation for a minimum of two years before becoming eligible for loans. Other banks that are smaller or regional may be more flexible. Appraisal — The lender will want to know what the property is worth. Commercial properties are appraised differently than single-family residential real estate, as the rents have a direct correlation with the value of the property. For the commercial property, the lender will want to know what kind of income the property is bringing in, which also affects the value. Financial Records — You may need to produce your past business tax returns and personal tax returns. One bank requires records of the previous two years in some cases, especially when loan requests exceed $100,000.
If you want to learn more about a commercial real estate loans, you should begin checking websites of various banks with whom you have previously dealt, or are in the region of your property or where you reside. Be aware of this list of general requirements, make your list of questions, and be prepared to discuss pertinent information about your finances and the property for which you are seeking a loan. Then visit or call a bank to speak to different representatives in person before you settle on the right lending institution for you.
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