For most investors, competitive financing is the biggest driver in achieving cash-on-cash yield as well as overall investment returns when acquiring income-producing properties. Understanding and navigating the capital markets is the single biggest challenge to investors seeking to maximize returns while funding the largest piece of the capital stack for property acquisitions. But it doesn’t have to be. Knowing what to expect beforehand can lessen the burden, and applying early can help you better understand your financial options as well as give you more negotiating power and weight behind any of your offers. While every situation is unique, here are the basics of what you’ll need in order to apply for a commercial mortgage.
Unlike with other large purchases, it’s not always necessary to meet a lender in person to close a commercial mortgage. If you do the necessary research on their license, background, and references, you can iron out the details by e-mail, phone, and fax. Not having face-to-face interaction with the lender makes it even more important to have a lawyer oversee the process.
- Don’t rush to take out a hard money loan. Even though it seems appealing to provide less documentation and avoid many mortgage restrictions, hard money loans can get very expensive – as much as 5% of the loan value up front with 15% to 20% interest – and may hamper your ability to get a commercial mortgage in the future.
- If you own property but want to relieve yourself of the responsibilities that come with it, you can enter a “sale and leaseback” agreement with another buyer. The new buyer can assume your current mortgage, and then lease it back to you.