Commercial Real Estate Loans » commercial property loan

Investment Loans California

VK — Tue, 06 Apr 2010 19:44:18 +0000

Capitalization Rates also known as “Cap Rates” is an analytical investment tool utilized by investors to determine the value of income producing commercial property in the market you are considering buying into.

There are basically three types of cap rate calculations related to the potential value of income producing property. If you know two of the three variables you can calculate the third. They are:

1. Purchase price of the property
2. Expected rate of return
3. Net operating income (NOI)
Note: NOI excludes non-cash expenditures such as depreciation for
determining cash flow.

Let’s assume an eight unit apartment building with a sales price of $1,500,000 with net operating income of $120,000.

What is the rate of return on this investment?

$120,000 divided by $1,500,000 = 8% return.

If the investor by chance wanted an 8% return, What should investor be willing to pay for a building with net operating income of $120,000?

$120,000 divided by 8% = $1,500,000 max purchase price.

If you know the market rate of return (8%) and the sales price ($1,500,000), what should be the cash flow generated from the investment?

$1,500,000 multiplied by 8% = $120,000 annual cash flow.

Let’s assume the apartment building only generates $100,000 cash flow annually. What would be the maximum purchase price the investor should be willing to pay?

$100,000 divided by 8% = 1,250,000 max purchase price.

In this example the building would be over priced at $1,500,000 and would not probably be a good investment. The property appraiser utilizes the cap rate as one of their tools in establishing the market value of the property. You as an investor should also understand and apply the capitalization tools in analyzing the potential acquisition of income producing properties

Commercial Investment Loans

VK — Thu, 01 Apr 2010 19:30:57 +0000

When a borrower is seeking a commercial investment loan whether to purchase a commercial property or to refinance an existing property one must consider the loan points also known as loan origination fees charged by the lender as well as, discount points offered by the lender. Points charged are a significant income generator for the lender. Each point is worth 1% of the loan amount. Therefore, if a lender charges 2 points on a $200,000 loan the cost to the borrower is $4,000 or 2% of the loan amount. These points are generally paid up front at the time the borrower obtains the loan, normally by reducing the borrowers cash proceeds. For commercial loans the points are tax deductible over the life of the mortgage. For example, if the $200,000 loan has a ten year term, the borrower can deduct $400 per year from their taxes ($4000 divided by 10 years). If the borrower paids off the loan prior to the expiration of the ten years, the unused portion is deductible in the year of sale or refinancing of the mortgage. The borrower should keep in mind that the greater the risk to the lender the higher the points.

Another factor the borrower should consider are discounts points whether to pay or bypass. A discount point is a fee paid to the lender up-front to lower the interest rate on the loan. This may make sense to the borrower if the mortgage is going to be retained for a long period of time. To determine whether to pay for a reduced interest rate, the amount of money saved over a period of time from a reduced interest rate should be more than the cost of the discount fee paid.

Commercial Property Loan

VK — Tue, 02 Mar 2010 20:12:00 +0000

Many people find the process of purchasing commercial property a challenge. Most investors cannot finance this type of loan from their own pocket. They need some financial backing. This is why you need a commercial loan broker. There are many commercial property loan lenders in the market but they want to lend money only to the right buyers.

Qualifying for this type of loan can be a tough road. You need to submit the necessary documents to the lending company and tax returns will normally be a requirement. These loans can take around 30 to 60 days of processing time.