If you are a residential mortgage broker or investor that wants to begin to get involved in the commercial side of the market, one of the keys will be your ability to take a look at a property and determine if it is viable in terms of being able to support a loan. You can tell fairly early on in the process if it is worth the time, or is a waste of time. Remember, with commercial mortgage loans it is not about LTV, but it is about the INCOME that the given property produces. This requires a little bit of a change in thinking, but it is imperative that you understand this. I am therefore going to say it again. LTV is out when thinking about commercial mortgage financing. It is all about the verifiable income that a building produces, and how well the resulting net income will service the desired loan. The amount of a loan that someone will qualify for, or LTV, comes into play ONLY after an underwriter calculates the debt service coverage (we will look at this number later) of a given loan amount at a given rate of interest. While on the surface this all sounds very complicated, it really isn’t. It is a fairly straight forward progression that you will follow.
Is the quality of your borrower important when looking at a commercial mortgage loan? Of course it is, to the extent that certain lenders require a credit score over 650, some require it over 700 for certain loan types, and payment lates, particularly mortgage lates will kill a loan before the process even starts.
This is all a brief introduction into the process that we will be examining over the next few articles which, at the end, will put you in a position to be extremely knowledgeable about the process, and very comfortable prospecting for commercial mortgage deals.
What are some of the areas that we will look at? Initially it will be the key ratios and calculations that are the initial building blocks of any commercial mortgage deal:
- Net Operating Income
- Capitalization rate
- Debt service coverage ratios or DSCR
I will leave you now with this basic rule of commercial mortgage finance that needs to be never forgotten:
An income producing property must be able to support a desired loan with the net operating income that it earns. Period.
Mike Haltman, President
Commercial Capital Alliance/Exeter Commercial LLC
131 Jericho Turnpike, Suite 202
Jericho, New York 11753
516.741.8880 (O)
haltman (at) easycommercial (dot) com
www easycommercial com
www thecommercialcapitalmortgageseminar com
Tags: commercial mortgage broker, commercial mortgage market, commercial mortgage training, commercial real estate, continuing education, education, investor, loans, mortgage broker education, mortgage broker training, mortgage training, mortgages, real estate, real estate appraiser, real estate attorney, real estate investing, real estate investor, residential mortgage, residential mortgage broker
