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Important Tips on Financing Commercial Real Estate

Real estate investments are usually lucrative but commercial real estate seem to be even more lucrative. Commercial properties are designed for income generation and not residential purposes. Investing in commercial real estate is, however, a great way to build wealth, as well as generate monthly cash flow. However, financing is essential for commercial real estate since these investments require huge capital. Therefore, commercial real estate investors often look for commercial real estate loans.

Commercial loans are usually different from single-family home and traditional loans at https://assetsamerica.com. It is important that the borrower understands the available options and the process. This will make it easier to secure a commercial loan. Working with professionals who have extensive experience in commercial loans such as Assets America would also simplify things further. Also, such an expert will assist you in choosing the financing option that fits your investment plan.

There are various commercial real estate options. Such options include owning an apartment building or multifamily properties, office buildings, hotels, and retail buildings among others. When looking for financing, what the lender wants is to be certain that the borrower will be able to service the loan. However, the investor can be even more prepared by doing certain things before applying for a commercial loan at https://assetsamerica.com/lines-of-business/multifamily-loans/. The following some important tips in financing commercial real estate.

1. Individual or business entity.

The investor should determine whether to file the loan application as a business entity or individual. Majority of commercial properties are purchased by entities like corporations or business partnerships. However, they can also be completed by individual investors. What the lender wants is a guarantee that the borrower can service the loan.

When the borrower files as an individual investor, the lender will require a financial track record for the investor to secure the loan. Also, new businesses that lack credit history will require that the investors guarantee the commercial loan.

2. Loan-to-value ratio.

LTV or loan-to-value ratio is one of the important metric considered by lenders when financing commercial properties. LTV is used to measure the loan value against property value. It is calculated by dividing the loan amount by purchase price. The lower the loan-to-value ratio, the better the rates.

3. Debt service coverage ratio.

Also, lenders will look at DSCR or debt service coverage ratio. It is the one used to measure whether the property will be able to service the debt. The annual net operating income of the property is compared to the annual mortgage debt service. The DSCR should be at least 1.25. If it is less than one, it shows a negative cash flow. Should you wish to learn more about real estate, visit http://www.dictionary.com/browse/realtor.

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