Commercial Mortgage Refinance Loan Options in 2011 and Beyond

Its painfully well known that the last 3 years have been difficult in the commercial lending business. Borrower’s commercial loan options have been limited and most have been difficult to close. We discuss the various commercial mortgage refinance options, that are available now and that will likely be available in 2012 below. You may not like what you read, but this is the reality of the market.

Refinance Options on Commercial Investment Properties

If you own a commercial investment property (I’m referring to NON multifamily properties, such as office, retail, industrial, etc) you already know how hard it’s been to find banks and lenders that are interested in considering your loan request. Probably 80% of the banks out there have no interest in funding investment property loans, no matter how financially strong of a borrower you are (The main reason is how commercial real estate sits on banks balance sheets, but that’s a different topic).

The good news is that 2011 has seen an increase in the number of banks and lenders that are willing to lend to commercial investors and for those that qualify the rates are outstanding. Here’s the typical terms: Max 65% loan to value and this is with conservative capitalization rates of 8% or more (Despite market conditions). Max 20 year amortization schedules. You may find a bank that would be willing to spread this out to 25 years but this is rare.

Fixed periods are normally capped at 5 years, however 7 and 10 years are available, but the bump in interest rates is expensive. Minimum debt coverage ratio’s is now 1.4 and this is with conservative underwriting line items such as minimum vacancy of 7-10%, management at 4% and reserves at 2%. Bottomline is that the property has to cash flow well. Unfortunately borrowers and their investment properties that don’t fit the above, will struggle to find loan options.

Owner User Commercial Properties

If your business occupies more than 50% of your building, than your loan options open up considerable and the level of competition between banks is picking up. The easiest way to make sense of the various loan programs is to divide them between conventional loans and government backed loans such as the SBA.

Conventional lending which was very limited up to 12 – 9 months ago is finally picking up. If you fit this box, expect great rates and closings in as little as 30 days. Terms are as follows: 65% (Maybe 70%) max loan to value. 15, 20 or 25 year amortization schedules. Fixed rates from 1, 3, 5, and 10 years. Rates are currently in the 4%’s to low 5%’s on 5 year fixed programs. Minimum debt coverage ratios of 1.25 with stable gross sales.

If your loan to value is higher than 65% and or if you have a special use property such as a funeral home or restaurant, etc you’ll want to look harder at the SBA programs. And despite the bureaucracy of the SBA loan process, it has literally been the life saver of 1,000′s of small businesses across the country.

Expect 90% loan to value, again 90% loan to value financing with either the SBA 504 or SBA 7a programs… No other loan programs offer this high of leverage. Borrowers that purchased their property a few years ago and have experienced a decline in value will find that this is their best potential solution. Rates on the 504 loan are very low and you can expect 3, 5, 10 and even 25 year fixed rates. For borrowers that need to consolidate other debt or secure working capital the SBA 7a loan is another solid option. Both of these loans will remain a popular and viable option throughout 2012.

2012 will likely see a moderate increase in the number of banks and loan programs that become available for commercial mortgage refinances. Loan to values will likely not increase as the capital ratios for banks are not going to loosen per the Fed’s rules. The European debt crisis will also have a major impact on banks in the 2012.

Investing in Property: What You Need to Know

Making the decision to invest involves careful planning and thought, especially when it comes to property. You have to decide where you want to buy, how much you want to spend and make sure that you can cover all expenses. If you buy a residential property and rent it out, the rental income may cover this, however, there are many other costs which may put a significant dint in your budget. What do you need to know before investing and how can you make sure that your investment decision results in a financial gain? Read on to find out.

Getting finance

The first hurdle is getting finance. Whilst most banks allow investors to borrow 90% of the purchase price, this is subject to a serviceability assessment which takes into account your credit history, employment status and income. Investors that wish to borrow 95% can do so, however the banks assess this on a case by case basis. Lenders Mortgage Insurance is also applicable; however some banks will include it in the loan amount. Once you get finance and purchase a property, it may be easier to get additional loans for other investments.

The banks will see that you have a strong record of prompt repayments and you can use the equity in your existing properties to get a loan with no deposit! If you choose to buy a residential property and rent it out, the income you receive can help cover your mortgage repayments. Read on to find out what rental income is and how it can benefit your wealth.

Rental income

This is the income that you earn through renting your investment property out to tenants under an agreement. Some properties such as display homes and properties rented by the government, offer a rental guarantee which guarantees rent to the owner, for the life of the rental agreement. Where you are buying and renting privately, the rental income you earn can help cover both the principal and interest repayment on the loan and may also help to pay other costs. Where the income does cover the mortgage repayments, this is known as positive gearing, and this serves as an indication that you are not losing money on your investment, and going out of pocket.

However, where the rental income does not cover your loan repayments and you have to pay for costs, these are tax deductible. This is called negative gearing and this also has its benefits. Where you do have sufficient personal income to pay the mortgage of your investment property, the added rental income can reduce financial pressure and allow you to spend more enhancing your quality of life, holidaying or further investing.

How to calculate your annual yield

When figuring out how much rental income you will receive from your property it is first important to determine the earning potential of the property. The best way to do this is to speak to an agent who can give you a more accurate estimate of the amount that your property is likely to be rented out for.

However, generally you can get an idea by looking at similar properties in the area, with the same size block, rooms and condition as yours. Whilst this gives you an idea of the rental income, it is important to bear in mind that your property may not be occupied all year round. There may be times where there are gaps between tenants and the property is vacant. During this time you will not be receiving any rental income and will have to cover the mortgage repayments and other costs.

If the area that you are buying in is in high demand, your property may be occupied all year round. However, it is also best to compare your property to others in the area to see how frequently they are vacated.

There are also other things to keep in mind including the on-going costs associated with property ownership. These include paying for repairs, maintenance and upkeep of the property, insurance, council rates and other expenses. You then need to consider your mortgage and interest repayments, which may amount to quite a significant sum.

With all this information, you can determine whether your rental income will cover monthly expenses, which include a combination of mortgage repayments and other costs. This way you can determine whether it is feasible for you to purchase the property and whether you will be able to afford it.

Costs

Although you may be receiving rental income from the property you have bought, it is necessary to consider the costs associated with purchasing the property, as well as the on-going costs involved in ownership. Even before purchasing the property it is important to conduct research on the area you are wishing to buy in, find out the market value of the property and enlist the services of financial planners or estate agents.

When you decide on what to buy, you will need a conveyancer and perhaps legal assistance. This is on top of the mortgage repayments you will make every month, as well as the stamp duty payable on the purchase price. All this can be quite a significant amount!

Once you own the property there are other costs included insurance, rates and other expenses for maintenance and repairs on the property, especially if you are renting the property out.
The costs can add up, so it is important to keep these in mind when deciding whether to buy.

Invest today!

If you think that it is feasible for you to invest, start looking at property and start speaking to the right people. Experts in the field can help you make informed decisions and assist you in planning your future investments.

How To Benefit Using Home Equity Loans

Most working individuals always aspire to own their own home. There are many benefits of this and the advantages are obvious. However, purchasing a home is a costly affair and usually involves plenty of savings and long term investing. Individuals may at one point acquire enough equity on their home to take out home equity loans. Investing for the future, especially for retirement, is an important matter that should be taken quite seriously.

It is one of the best decisions any person could ever make. Good retirement plans will provide a secure future after retirement by providing the retired person with a regular income. The income could be used to meet daily expenses such as food, clothing, bills and medical attention. This retirement payments, combined with social security could provide pretty good retirement years. Once an investor has purchased a home, they will keep paying the mortgage over a couple of years. After some years, the home owner may acquire some equity on their home based on the amount of mortgage repaid.

This home equity can be used to acquire credit such as loans and cash advances. The home equity will act as collateral on the borrowed money. There are plenty of great investment hubs for prudent investment for retirement. Some government programs while others are run and managed by private firms. Whatever option is chosen as a retirement program, it should have sound management policies and prudent management so that returns generated are attractive, sustainable and above regular returns. Investing directly with fund managers is much safer though this has a lower threshold of return.

Fund managers are professionals that invest money through various portfolios. These include money market, real estate, bonds and stocks. They usually pool together funds from investors so as to generate funds using the funds. The managers use skills, knowledge and experience acquired and honed over a number of years. The home equity loans can be sued to invest in relatively safe and high yielding portfolios at the fund market and equity market. Some of the funds may be put in equities.

These are high yielding but long term investment options that must be considered carefully. Stocks and bonds may be lower risk ad have faster returns. Diversification of the funds is always the best way to invest. Home equity funds can be invested in various baskets so as to minimize the risks and maximize on returns.