Commercial real estate can have a high barrier to entry, but determined entrepreneurs willing to put in the work and time can see a substantial return on their investments. Read on to learn more about real estate investment loans and how to maximize your relationship with your lending team.
Real estate business loans for investors: what factors to consider
There are many factors to consider when seeking a real estate investment loan. Some include:
- Loan Terms: The loan length, repayment schedule and covenants will determine if the agreement is viable for the investor.
- Collateral Requirements: Depending on the Loan to Value (LTV), a larger down payment may be required. Credit History: Banks typically check the borrower’s credit history while underwriting a loan. Commercial landlords with a strong credit and operating history are more likely to receive more favorable terms.
Real estate business loans for investors: preparing the request
Commercial landlords should be ready to answer questions when asking a bank for a loan. The more prepared they come to the appointment, the better!
Using a multi-unit retail building landlord as an example, here are some questions a banker will ask when a real estate investment loan is requested:
- What historical income and expense information do you have on the property?
- Do you have copies of current leases, certified rent rolls, and expense reports?
- What recent capital improvements have been made to the property?
- Are the real estate taxes being assessed properly?
- Is there an available environmental report on the property?
This helps the bank understand where to begin building a proforma cash flow, as cash flow is what ultimately repays the loan.
- Does this property pass the cash flow test?
Interest rates rise and fall all the time, which means making loans on the same property is a lot different today than it was six months ago and will be six months from now. Interest rates affect cash flow, which determines whether or not repayment abilities will be impacted.
- What does your credit look like?
In addition to using the proposed property as collateral, the bank, in many cases, also requests a personal guarantee from the commercial landlord. This guarantee provides additional payment protection for the bank. That means the bank collects personal financial information from everyone involved in purchasing the property (even if it is an LLC) to ensure their credit history and financials are in order.
- What does your tax history look like?
While savvy entrepreneurs try to be as tax efficient as possible, inaccurately reporting income is illegal and a non-starter when it comes to real estate investment loans. Banks ask for tax returns, and commercial landlords should be prepared to present them.
Real estate business loans for investors: our approach
What sets Pan American Bank and Trust apart from other banks is that we are not a multi-layer decision-making bank. We believe in the quality over quantity principle, and that building long-term relationships with our clients is the key to success for all parties involved.
We provide continued support to our commercial real estate clients through personalized concierge banking services and direct access to our lending team 24/7. Choosing us as your lending partner means you’re getting more than a real estate investment loan; you’re getting bespoke advice from bankers who care.
Get in touch with one of our Commercial Lenders and learn more about your commercial real estate loan options today.