Applying for commercial real estate financing is a big step. It’s not easy to get commercial property loans, especially if you are a first-time borrower. Before you apply, there are some things you should think about in order to be fully prepared.

Commercial real estate financing is different from residential real estate in a big way, according to the lender. With residential real estate, they are looking at how much the property is worth, and not overly concerned with how much it will make in the future. Residential property generally appreciates over time. With commercial real estate, however, they’ll be looking at future profits.

This means that they will be concerned less with the current worth, and more with the possible worth. As a result of this, they will be very concerned with what sort of profits the venture will generate. This is why it is very important for you to sit down and do the math. How much do you think it will make?

This means also that you should be clear on how you will use the property. What kind of business will this be? Is it going to be all for one business, or are you going to rent out units? These will be major considerations for the lender, so make sure you have a detailed plan all set out.

The actual geography of the property will also be a factor in determining whether you get your loan or not. Look at the location of the property and how that will effect the business. You will have more trouble getting financing for a place located way out in the sticks than a place on a highway off-ramp.

The size and type of the property will also be factors. You will want to look at the history of the place and make sure there aren’t any minor details that might cause trouble, like environmental problems.

Risk is the most important consideration to lenders. They will be looking at the future of the venture and, in particular, at possible things that could go wrong with the business.

A big part of this is the condition of the overall market. You can save yourself trouble later with your commercial real estate financing by studying the market and understanding its current trends. This is what your potential lender will be looking at, so it’s good for you to understand it as well. If the future is uncertain for the type of property you are trying to buy, they may be worried about making back the loan.

Before the deal closes, they will send you a “commitment letter.” This is a notification from the lender letting you know officially that you have been approved. More importantly for the lender, the commitment letter will have the terms and conditions of the loan. In other words, these are the rules.

It will tell you details about the closing conditions, rules for what you can and can’t do with the property, as well as a summary of all the terms you agreed on, making it official. Take a good look at this and make sure that it will not prohibit you from doing the things you intended when you requested the financing.

Finding commercial real estate financing is a long and drawn-out process, but if you can consider a few things before you apply, you can save yourself the headache of dealing with something unexpected later.

By: Andrew Stratton

About the Author:
Getting a lender to approve your commercial real estate financing can be a difficult process at best. It helps if you are prepared for the questions they will ask and if you know exactly what your business plan is. KISCL can offer you materials to make this task easier. http://www.kiscl.com

In our line of work, doing consulting for different high net worth real estate investors, we come across all types all types of commercial real estate acquisition strategies.

Some commercial real estate investors want to invest in only apartment buildings. Some investors wouldn’t touch apartment building if their life depended upon it because they think, as a whole, apartment buildings are over priced at this point in time.

Some commercial real estate investors want to invest in low-income housing. Others wouldn’t touch low income housing with a ten-foot pole, because they don’t want the headaches of collecting the rent and the abuse the property receives.

Some commercial real estate investors want to invest only in real estate where there’s an existing tenant to create cashflow. Others would prefer not have an existing tenant because they don’t want to pay the premium for the property.

As you can imagine, we could go on and on.

What’s fascinating is the seeming contradiction between the different strategies.

One investor’s ceiling is another investor’s floor.

But after reviewing the detailed business plans of literally hundreds of commercial real estate investors, there IS a common denominator to the strategy for their real estate ambitions.

Here it is in a nutshell:

First, they have a long-term plan. They are NOT opportunistic, looking at every single deal that crosses their path. They know their exact acquisition strategy. Whatever acquisition strategy they have, it fits into their overall wealth building strategy.

Yes, that may be common sense on paper, but in reality most commercial real estate investors, especially new ones, tend to shoe horn in whatever deal they are contemplating into their long-term plans.

They first key is that the strategy must drive the acquisitions, not the other way around.

That’s why you see some people sell off their entire portfolios of hodge podge properties. It’s a pain in the neck to corral them and so they try to get an unsuspecting person to take the winners and with the losers.

The second key strategy is they do their market research. Stated differently, they know the market or area they want to make an acquisition in.

It’s common knowledge for instance, that the major retailers know where the best locations are in the country. They just don’t put a store where think it will do well.

They put it up where they KNOW it will do well.

How do they know? They do their own research. They understand what PRIME retail space is to them based upon their needs down to the traffic patterns, congestion, local merchants and the specific growth areas within a community.

Now, some people think market research is ONLY for big companies; that it doesn’t apply to them.

If market research is one of the things you have a challenge doing, then you should look at it this way: