4 Big Points to Consider Before Refinancing Your Commercial Loan

When undertaking the commercial refinancing process, you’ll likely have a number of questions about how to secure the best value for your money. There are a number of steps that must be taken to ensure a clear path to successful refinancing. In this new post, we’ll explore the commercial refinancing process in greater detail and explain what you need to know.

1.    Review the Requirements of the Lender

Before refinancing, you’ll want to consider the requirements of your lender for the refinancing process. What limitations does the lender place on you as the mortgage holder, and how do these limitations impact the refinancing? For example, some lenders require that the property holder has owned the property for at least 12 months before beginning the refinancing process. Others will require the property to be owner-occupied, so if you’re leasing the property out to a business, you may have more difficulty obtaining a new loan. Review the requirements of the lender before moving forward with the process.

2.    Consider the Types of Refinancing

There are several types of commercial refinancing a business owner can undertake. For example, one of the more common options is a cash-out refinance. This tactic allows you as the property owner to access a percentage of the cash value of the equity in the property in the form of a loan. The cash can then be used to improve the property to increase its value and its potential for revenue generation. Review the full range of refinancing options with your lender.

3.    Differences between Commercial Refinancing and Home Refinancing

If you’re used to working with residential lenders, you might also consider the major differences between commercial refinancing and home refinancing. For example, homeowners depend on their credit score and past payment history, whereas commercial refinancing is largely dependent on the NOI of the property itself. NOI (Net Operating Income) is the income derived from a property minus the expenses of managing that property. The commercial lender will review the NOI closely before deciding on the loan.

4.    Review the Fees and Fine Print

One of the minimum requirements for the refinancing process is a new appraisal. The property appraisal will determine the value the lender places on the refinancing. A lender’s fees may also be a hindrance when deciding whether or not to refinance.

If you do some research, you can identify lenders who reduce certain fees or remove them altogether. Above all, search for a lender that values transparency when it comes to fees. You can make an educated decision if you have all the necessary information in front of you.

By taking a closer look at the details of the refinancing process, you can make distinct savings and put yourself in a position to achieve your long-term financial goals. Our trusted team has decades of experience in the commercial lending field, and we can help you save money when refinancing your building. Apply now to see how much you can save.

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Due Diligence in Commercial Real Estate Transactions

Completing due diligence in commercial real estate transactions helps buyers ensure they have all the details regarding the property, its potential value, and any financial issues that could arise in the future. But many investors don’t have a clear understanding regarding each of the elements involved in completing due diligence. Our seasoned team is highly experienced in guiding investors through due diligence steps. In this new post, we’re taking a closer look at the processes involved in completing due diligence within commercial real estate transactions.

The Goal of Due Diligence

The goal of the due diligence process is to identify the most important issues to take into consideration when finalizing a purchase. The process should identify issues related to title insurance, easements, liens, and other elements that might be obstacles to effective and profitable ownership. Due diligence should indicate whether a building has to be significantly upgraded in the short-term, for example. If the property is subject to the Americans with Disabilities Act, new changes might have to be made to accommodate the latest regulations.

Reviewing Property-Related Documents

During due diligence, a number of property-related documents are reviewed and considered. For example, the team completing due diligence will review the property’s insurance history to determine if any claims have been made against the previous owners. If there have been past claims related to the property, these claims must be investigated before due diligence is completed. An example might be a water intrusion issue that required intervention from an insurance firm. The event must be analyzed both from an insurance perspective and from a structural perspective to determine if the issue has been resolved and if the current insurance policy mitigates potential future risk.

Analysis of Financial Statements

In completing due diligence within a property transaction, all financial statements must be carefully analyzed for instances of fraud or mismanagement. The property’s tax history will be reviewed to ensure that there are no existing liens against the landholder. In some cases, the owner’s financial history will also be reviewed to ensure they have made the proper maintenance payments for the property in previous years.

The seller and their team will carefully analyze the buyer’s financial records, and any issues with financing will be highlighted during this analysis. This comprehensive review will prove that the buyer is serious about the investment and that they are capable of finalizing the deal.

Finalizing Legal Terms

As part of the due diligence process, the legal teams of both the seller and the buyer will discuss the transaction and come to an agreement on the handover. For example, legal teams for the buyer will add specific contingencies to the contract based on the finalization of the due diligence work.

By developing an in-depth understanding of the due diligence process, you can help safeguard the value of your investment. Our team has years of experience supporting clients through the investment process. To learn more about our company and your loan options, apply with us today.

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What to Know About Refinancing Commercial Real Estate

Commercial property refinancing can be complicated for those with limited experience in the lending marketplace. That’s why many are now turning to trusted lending experts for information they can use to find success.

The team at Commercial Direct, a division of Silver Hill Funding, LLC (the lender), has decades of experience in the commercial lending marketplace and can help you find a refinance solution that meets the greatest number of your needs. In this post, we’ll tell you what you need to know about refinancing a commercial property.

Consider the Loan-to-Value Ratio

The LTV offered to you by a commercial lender translates directly to how much you can borrower with your loan. It represents the maximum level of risk a lender wants to take on with your loan. A higher LTV represents a riskier loan for your commercial mortgage lender, and a lower LTV represents a “safer” loan.

Before securing a loan, you need to know two things to understand what to expect from your LTV: your desired loan amount and the value of the investment property you are hoping to refinance. Keep in mind that most commercial lenders require a down payment between 20% and 30% of the property purchase price.

Maximum LTVs vary for commercial lenders. Borrowers who partner with Commercial Direct can achieve a maximum LTV of 80% on commercial loans.

Review the Financing Charges

One area that many commercial property owners fail to consider is the finance charges on their loan. The refinancing origination fee for the new mortgage and the appraisal fee can be considerable, and it’s critical you take these fees into consideration when evaluating your full range of commercial loan options.

Pinpoint Interest Rate Changes

Interest rates are continually changing based on the economy and on the financial strength of the lenders. But your personal interest rate is largely based on your financial history and the revenue your commercial property generates.

If you can’t show a high enough income within your property, the interest rates for the commercial loan might be considerably higher than you expected. Take into consideration your current interest rate and how this rate might change with your new loan. That can give you an indication of the cost of the loan and the value the loan provides in the years ahead.

Get Help Early in the Process

A leading mistake that many commercial property owners make is that they wait until the last minute to review and compare the available options.

This can often mean that you’re facing a mountain of paperwork with little understanding about the process. There are many challenging concepts to understand as you wade through the commercial property refinancing process, and if you don’t work with experts from the earliest phases, you’ll find the process takes twice as long and costs you far more money than you anticipated.

If your current loan has a balloon note at the end of the term, you could also put yourself in danger of having to make a very expensive payment if you do not find a refinance solution in time.

The best course of action is to start researching refinance solutions far in advance. That way, you can take your time and compare your options without having to worry about making a quick decision that could negatively impact your future.

Our experienced team can help you understand the commercial property refinancing process and put you in a better position to get a commercial loan that works for you. To find out exactly how much you can save, please apply through our team today!

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5 Things to Do Before Making Your First Investment

As a new investor, you’re likely excited about the prospect of completing your first deal. But it’s important to take your time, review the market environment, and ensure your funds are being allocated effectively. Our team has extensive experience within the investment marketplace, and in this latest post, we explain what you need to do before completing your first deal.

1. Build Your Support System

 Your support system will be crucial to your success over the long term. Investing can be a challenge emotionally, particularly for if you’re not sure what to expect. Having a support system of friends, family, and fellow investors will help you make more effective decisions for yourself and your investment profile.

2. Form a Board of Advisors

 While you should have family members and friends to discuss personal issues that might arise during your investment process, you also need industry guidance. Forming a board of advisors with past investment experience can help you navigate changes within the market and overcome potential obstacles. A seasoned investor will understand the best approach when dynamics change and can give you the confidence and knowledge to move forward.

3. Choose an Established Accountant

 Your accounting processes will be the element that’s most important to your overall revenue generation. Making sense of the numbers and building a profile for your investments can ensure that you know the investment’s direction and when to buy or sell. An accountant will be an important partner as you work to make difficult decisions throughout the course of your investment. They can help you determine the best strategies to mitigate tax exposure while also providing updates on your current financial status.

4. Select a Marketing Firm

 If you plan to purchase a multifamily or office property with space for a number of additional tenants, you may want to invest in the services of a marketing firm to help attract new renters.

While you can likely execute on small-scale marketing initiatives yourself, additional help may be required when it comes to promoting your building as a living or working solution for others.

Before you select a marketing firm, ask to see examples of their previous work. If at all possible, try to engage with those who have experience with commercial real estate marketing.

5. Cultivate Your Investment Network

 An investment network comprising high-earning individuals will ensure you have access to capital when required for your investment projects.

Call those within your professional sphere and find out about their potential investment requirements. Would they be interested in partnering with you? What would they ask of you if they were to get involved in the project? Once you have a solid network of investors, you can then move forward in analyzing properties and pinpoint the right project for your group.

Working with a qualified loan specialist can ensure you have the guidance and expertise to succeed with your investment project. To learn more about the process of real estate investment, contact us today.

 

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Tips for Wrapping Up Commercial Real Estate Deals

Commercial real estate transactions can become quite complex. You may find the deal is not progressing as expected and you that you experience a number of issues that cause delays. Minimizing the time to completion while ensuring you have all the data required to secure your investment is the best way to ensure an effective deal finalization process. To help you manage your commercial real estate deals more effectively, we’re highlighting several tips in this new post.

Build a Transaction Plan

One of the main mistakes investors make when completing their commercial real estate deals is not forming a transaction plan. A transaction plan includes all the details of the purchase and visualizes the end product. For example, if the goal is to build a shopping center on an empty lot, the transaction plan goes through each of the details of the construction process, the costs involved, and the final projections for profit to ensure a clear path to success. The plan should include the time required to complete the process and the potential pitfalls that might be encountered.

Identify the Issues

Simply identifying the many issues associated with the commercial real estate deal can be the best way to ensure you’re successful in avoiding them. That can help you to deploy risk-mitigation strategies that place you in the ideal position moving forward. Within the closing process, you might encounter issues with permits, structural damage, tenancy issues, and other common problems. Make sure that you have effective risk mitigation strategies in place.

Hire an Experienced Attorney

The process of finalizing a commercial real estate deal doesn’t simply involve the buyer and the seller. There are a number of moving elements involved in the deal. For example, there are vendors involved in the property assessment, government agencies involved in completing environmental studies, and industry professionals completing feasibility analysis.

To manage each of these third-party representatives, you must employ a skilled attorney. The attorney can help streamline communication between the various parties while ensuring your interests are protected throughout the process. Enlisting the services of an experienced attorney will ensure you have a resource you can communicate with and rely on to help you manage any legal issues that often arise when closing a high-value real estate deal.

Coordinate with All Stakeholders in Managing Documentation

The documentation involved in a commercial real estate transaction is often exceptionally complex and demanding of your time. You will have to spend many hours going over the documents with your attorney and other stakeholders in the process, so you should ensure you have the time to finalize all the documentation needs before the closing date. You can start the process effectively by noting down the dates when key documents must be submitted (budgets, planning proposals, feasibility studies, etc.) and then maintaining a strict schedule to keep the project on track.

Our team is here to help you finalize your loan process and achieve low-cost financing for your upcoming investment. Apply now to see how much you can save.

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Value-Added Multifamily Deal Screening Questions for Investors to Ask

As a real estate investor, it’s critical that you obtain as much information as possible before making a purchase decision. By establishing a set of screening questions, you can begin to develop your knowledge of the investment options available to you. In this latest post, our team explores how to pinpoint specific questions you might ask a prospective building seller.

What Is the Local Market?

Exploring the local market should be the first consideration when evaluating the potential of any new deal. Make sure you have a clear understanding of the population in the area, their current wages, and the projected wage growth. The median income for the area should be enough to cover potential rents and, in most cases, tenants should make four times the annual rental amount to qualify for tenancy.

 

What Is the Seller’s Motivation?

The person selling the property likely had a plan of their own at the outset of their investment. Therefore, it’s important you understand why they are selling the building and how these reasons might impact your potential return should you make the purchase. Does their story make sense? Are they a long-time owner looking to get out of the real estate market, or is there an issue with the property or location that is compelling them to sell?

 

What Is the Location?

The location of the building should be carefully considered when evaluating the value provided by the deal. How many cars pass by the building on a daily basis? Is the building in an area with low crime and high levels of education?

What Is the Condition of the Property?

When was the last time someone checked the property’s air conditioning and heating systems? Does the building have new windows and doors? Make sure you have all the information about the infrastructure of the building so you can avoid having to invest significant funds on upgrades in the short-term.

What Are the Expenses?

The expenses for the project should also be a leading factor when determining the project’s value. What is the annual growth rate applied to expenses, and how does this annual growth rate compare with the growth rate of income?

What Is the Debt Structure?

When deciding on a new property venture, the level of debt associated with the venture should be a well-considered element. Is the rate locked for the purchase? Are the debt assumptions within the deal based on tangible data or on educated guesswork? Oftentimes, the way an investment is presented within the prospectus is quite different from the outline for the deal when you analyze the hard figures alongside your accountant.

Working with a qualified investment professional will help provide a foundation for investing in multifamily properties. To learn more about screening questions that you should consider when reviewing local buildings, call our trusted team today.

 

 

 

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Telltale Signs You Should Avoid a Deal

When entering into a new real estate transaction, you must be clear about the figures involved and the potential impact of the decision. But sometimes, the dangers of concluding a transaction are not abundantly clear at first glance. It takes years of experience to spot challenges within investment transactions, and our team can help guide you in avoiding these potentially difficult deals. In this latest post, we’re highlighting the telltale signs that you should avoid a deal.

No Connection to the Local Market

Real estate should be a local proposition in which the investment is connected to the local environment. When the investment team has little understanding of local market dynamics and few local connections, you might think twice about a deal. For example, does the investment group plan to hire a local property manager? Do they have experience in operating properties within the region? Without this experience, it will be difficult to achieve success with the investment.

Aggressive Financial Assumptions

While all investors should be hopeful about the success of their investment in the long-term, pragmatism is still required to ensure hard figures are used and that all investors are on the same page in terms of potential outcomes. Make sure that you have the figures provided by the investment company analyzed by a professional. Question all of the assumptions being made, and discuss the facts and figures with them directly to find out their data sources.

Lack of References

The investment company you work with should have a number of references with whom you can discuss the company’s past work. If you are going to become an investor within a deal, you must ensure you ask the sponsor of the project for their references and for information showing they have the requisite experience and knowledge to secure long-term returns.

Not Identifying Risks

When the sponsor of the investment doesn’t identify the risk when promoting the investment profile, this is a clear sign that there is something not quite right about the deal’s potential value. There is always some element of risk involved in any investment, and highlighting this risk can help ensure that you have the right balance between risk mitigation and investment potential. Ensure you discuss the potential risk of the investment with the group, and make your decision based on the information, or lack thereof, provided.

The Firm Hasn’t Managed Several Cycles

Most real estate investments have performed well in recent years due to the low interest rate environment and the economic growth across North America. Therefore, firms that have only been in operation since 2009 might have only experienced exceptional success. When choosing investment opportunities, look for companies that have an investment history stretching back more than a decade to find groups that can navigate downturns in the market while safeguarding investors.

Our trusted and experienced team can help you review the financing options for that upcoming investment. Apply now and discover your range of loan options.

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