{"id":112158,"date":"2019-06-20T14:30:33","date_gmt":"2019-06-20T20:30:33","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=112158"},"modified":"2021-03-16T14:54:33","modified_gmt":"2021-03-16T20:54:33","slug":"commercial-properties-qualify-loan-investor-advice","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/commercial-properties-qualify-loan-investor-advice","title":{"rendered":"How Do You Qualify for a Commercial Real Estate Loan? 10 Investors’ Tips on How to Prepare"},"content":{"rendered":"

This is the third blog post of three meant to share answers about commercial investing from the BiggerPockets community. Be sure to also check out the first, “Should You Invest in Commercial Properties? 10 Investors Weigh In,”<\/a> and the second, “Why Is the First Commercial Deal the Hardest? Advice From Investors.”<\/a>\u00a0<\/em><\/p><\/blockquote>\n

While working on new lender partnerships for BiggerPockets members, I realized there was a gap in my knowledge of how commercial investors decide which property to buy and who to work with. Since only 15 percent of investors on BiggerPockets invest in commercial, I thought that perhaps there are questions many investors want to ask\u2014specifically about getting that first deal.<\/p>\n

So, we posted a survey about commercial investing in the BiggerPockets Announcement Forum<\/a>. Below you\u2019ll find the answers from top commercial investors in our community.<\/p>\n

The questions are:<\/p>\n

    \n
  1. What made you decide to invest in commercial properties?<\/a><\/li>\n
  2. What was the hardest part about the first commercial deal you completed?<\/a><\/li>\n
  3. What should every first-time commercial investor know to be prepared to speak with a lender?<\/li>\n<\/ol>\n

    Today we tackle question No. 3.<\/p>\n

    \"Outdoor<\/p>\n

    What Should Every First-Time Commercial Investor Know to be Prepared to Speak With a Lender?<\/h2>\n

    Here\u2019s what investors have to say!<\/p>\n

    Starting With My Favorite…<\/h3>\n

    \u201cThey should know what a lien waiver is. I cannot believe they loaned my dumb ass the amount of money they did.\u201d \u2014 Anonymous<\/em><\/p>\n

    “Know a successful commercial investor.”<\/h3>\n

    \u201cEvery first-time commercial investor should know someone who is successful in your field<\/strong> and doing business in the area you’re doing business. If you have the opportunity to partner up with those who already have a track record, then that’s gold. You can learn and earn all at the same time.\u201d \u2014 Jeffrey Rollon<\/a>, San Diego, CA, Developer<\/em><\/p>\n

    “Share your past successes.”<\/h3>\n

    \u201cBest to have some experience doing what you propose to do. A success story or two or three that you can show a lender goes a long way.<\/strong>\u201d \u2014 Jim Schneck<\/a><\/em><\/p>\n

    “Know your numbers. For real.”<\/h3>\n

    \u201cBe ready with a personal financial statement.\u201d \u2014 Aravind M.<\/a><\/em><\/p>\n

    \u201cKnow the project inside and out.<\/strong> Understand the challenges, and be prepared to have an answer to it, and mitigate the risk to investors. Every project has challenges. Be realistic.\u201c \u2014 Karen Margrave<\/a>, Redding, CA, Realtor with 35 years of experience<\/em><\/p>\n

    \u201cKnow the numbers inside and out. You should be able to speak about income, leases, and who your tenants are. You should also know every expense and who pays for them. <\/strong>Hopefully, your property has triple net leases.\u201d \u2014 Danny Randazzo<\/a>, Charleston, SC, Apartment Syndicator & Commercial Investor with 6 years of experience<\/em><\/p>\n

    \"New<\/p>\n

    \u201cYou have to know how all the numbers associated with the property are related. On the income side, know what current market rents are, what increases are currently in the area, and what your competition is. Be on top of why someone would want to rent from you vs. the other available spaces near you. This will help maintain your income stream and lessen chances of vacancy. On the expense side, you must know all your expenses. What are your utilities, taxes, impact tenant change-over will have, upcoming repairs on the HVAC system, etc. As you scale up with multiple commercial tenants, so too will the expenses.<\/strong> Keeping expenses in line and making small increases in rental income can provide for quick increases in property value. On the flip side, escalating expenses and stagnant rents can just as quickly eat away at your value.\u201d \u2014 Will Kenner<\/a>, Seattle, WA, Rental Property<\/em> Investor with 10 years of experience<\/em><\/p>\n

    \u201cThe current lease terms and length, any existing tax debt or other debts, actual income generated by the property.\u201d \u2014 Efrain Hernandez<\/a>, Queens, NY, Rental Property Investor with 2 years of experience<\/em><\/p>\n

    \u201cThe lender wants to know the income and expenses for the building<\/strong> (Pro tip: you should want those numbers, too!) The lender will then calculate the debt service coverage ratio and will want to see at least 1.25. Loan terms are typically no longer than 20 years and there is often a balloon well before that.\u201d \u2014 Bob Langworthy<\/a>, Brunswick, ME, Accountant & Real Estate Investor with 10 years of experience<\/em><\/p>\n

    \u201cKNOW YOUR NUMBERS. Go in there with the numbers the lender is going to care about: rent rolls, cap rate, cash flow\/mortgage ratio, and your personal or business balance sheet plus income statement. You should know your net worth and show them that it really doesn’t matter because the deal can stand on its own. If you show them you’re in the business of doing business, they’re very receptive.<\/strong>\u201d \u2014 Jonathan Bombaci<\/a>, Lowell, MA, Real Estate Agent with 1 year of experience<\/em><\/p>\n

    Takeaways & Resources<\/h2>\n

    Takeaway 1:<\/strong> Learn from someone who has done a commercial deal.<\/p>\n