Commercial loan for multi Property?

Question

I have an offer for doing a commercial loan on my first multi property sixplex!

As I was working on it, I started to wonder... « what will the typical lender expect from my numbers before approving me in terms of cap rate, cash on cash...»

For example...let’s say I am confortable with a 7% cap rate when the market is 9%... or if I am confortable with a low cash on cash ratio lender might not like it... I don’t want to pay 10k+ in appraisal inspection and other fees, only to be declined by the lender for not liking my deal after underwriting, right?

So would anyone has some experience and tell me « ball park » key ratios not to break in order to get likely to be approved by lenders. Their tolerance for risk or low return might be different from mine... better have an idea before placing a offer and putting earnest money

I am sure the answer is it depends on lenders... but some experience from anyone knowing what typical lenders want to see before approving?

Hadar Orkibi · Answer

@JD Causse you need to the question to your chosen lender.

when you start looking for deals you need to have already identify at least 3 lenders that could be a possible fit. If you didn't you are setting yourself for harder process.

once you chosen a market, choosing your team (including lender) is very important!

Lenders would consider the following:

The Debt Coverage Ration, typically need to be minimum 1.25%

Your Income

Current condition of the buildings

Occupancy rate (Physical and Economic)

Management team - who is going to mange the property and if they have experience.

if the market cap is 9%, why are you willing to pay 7%??? is it a value add deal??

you need to explain that to the lender.

i hope that helps.

Tj Hines · Answer

@JD Causse the lender wants to make sure of one thing - and that is making sure that there’s enough income/revenue to take care of the operating expenses and service the debt. They’re looking for the property to perform at a DSCR of at least 1.25%.   We underwrite more to a 1.45%+  DSCR for more of a cushion. The formula is  NOI/ Annual Debt Service  = DSCR