Securing your Real Estate Loan
Securing a Real Estate Loan? A little knowledge goes a long way! The common perception is that it is a complex or sophisticated undertaking. It is not.
This is not to say that it is easy. Nor is it certain that you will be successful. In fact, many experienced real estate investors have been frustrated in their attempts to secure appropriate financing. Not because they were not intelligent or successful investors. They simply lacked the knowledge to present their loan opportunities in a way that would maximize their opportunity for success.
The fundamentals remain the same
It does not matter whether your lender is a small local Credit Union, or a large Bay Street consortium. The fundamentals of commercial real estate lending and underwriting remain the same. As a result many lenders are used to receiving a comprehensive loan presentation package. Typically prepared by a mortgage broker, the package provides detail and presents the important facts. This puts all of the required information at the lender’s fingertips. A proper package is a well organized and persuasive presentation.
First time commercial borrowers or brokers unfamiliar with commercial lending, often deviate from this tried and true approach. The results are predictable. The lender is often frustrated by having to trade calls to obtain answers to the most basic information. The borrower is frustrated by the time it is taking to move the application along. Why? Largely its a result of not preparing or presenting the property and borrower information in a format that the lender requires.
Your loan presentation package is key
In our previous post entitled A Loan Presentation Package. Prepare Yours!, we discussed how the presentation package is a business plan for your property.
Your plan will:
–Describe your property, it’s location, and the market within which it is located;
-It will provide details as to the property’s income, and
-your plan will detail the ownership of the property, as well as the owner’s financial strength and real estate experience.
The recommended format is as follows:
1. Executive Summary
- provide summary of key points
- allows lender to quickly decide whether your loan merits further consideration
2. Property Description
- building and design features
- property features
- environmental influences
3. Location/Market Discussion
- market conditions
- location discussion
- traffic discussion
4. Income/Expense Analysis
- income/expense presentation
- projected and historical cash flows
5. Ownership/Sponsorship Discussion
- financial capacity
- experience and expertise
The detail to be provided differs from deal to deal. As a result, the presentation you complete for a 4 unit residential building will be shorter than then presentation for a retail/office complex. Furthermore, you may choose to complete an abbreviated Executive Summary presentation only, and that’s fine as well. The point to underscore is that you only get one chance to make a first impression! Use the Executive Summary portion of your presentation to provide your lender all of the pertinent facts. Be factual, complete, and crisp with your presentation, and you’ll be sure to interest your lender in proceeding.