Commercial Financing verse Residential Financing

2 Replies

I have an opportuity to pick up a 6 unit rental in Northern California that looks like it will run a 14% COC Return. My question is commercial financing would need to be used. How does commercial qualify you /property verse the way residential qualifies a buyer for investment property. Does the property stand on its own and the loan would not reflect on my personal credit or would a commercial loan still use my personal credit.

Commercial loans are based on the asset, whereas residential loans are based on the applicant's ability to repay the loan. There may be a personal guarantee stating that you will pay back the loan in the event your business defaults, but if you're buying the property as a corporation, then the loan will be made to that corporation and not go on your personal credit report.

@Rich Hanlin every lender is different and have different appetites, offer different returns and have different requirements so you will need to shop several.

They will look at the property in terms of the cashflow to cover debt service. most will want 1.25 min DSCR

they will look at your credit and financial strength including income and  cash reserves to qualify as the guarantor.