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

There are thousands of Tucson commercial real estate properties, and you will surely find the right office or retail space, or commercial land you are looking for if you know where and when to look. Here are some pointers.

Online Tucson commercial property finders

There are a lot of helpful web resources that allow you to search by specific area, and allow you to specify whether you are looking to lease or buy, the number of square feet you need, the price range you can afford, and even your reason for buying. Most sites are owned by Tucson real estate agencies and brokerage companies, and they usually provide this service free of charge. Some sites require you to at least register before letting you access the property finder portals, though. The registration forms are fairly short – it will probably take you less than 30 seconds to complete them. Be careful about giving your email address though, because the site may start sending you unsolicited Tucson real estate news.

Perfect timing

The most optimum time for purchasing commercial property in Tucson is when the prices are low. This usually happens the properties listed outnumber the buyers. Expect that you will be able to haggle during such periods. Given the booming commercial real estate industry in Tucson, though, you may not get the lowest prices. Most sellers – especially those who bought the properties as investments – mark up about 20 percent or more.

How do you get the commercial property you want without breaking the bank? Find a good Tucson real estate agent. The key is not just to find the cheap deals – more importantly, you need to find it fast, ahead of other aggressive buyers. Choose a real estate agent that get you do the latest listings earlier and you already have a clear advantage.

To save on money, you can also look into “for sale by owner” Tucson commercial properties. This lets you are the seller cut through the middleman and negotiate your own terms. This arrangement can potentially save you thousands of dollars, but it can also cost you more if you have no background in real estate. The property may turn out to be overpriced, and without a qualified Tucson real estate agent who is well-versed in Tucson zoning and current commercial estate market rates, you will never know this until you have already paid.

By: Steve Valentino

About the Author:
Tucson Real Estate [http://www.e-TucsonRealEstate.com] provides detailed information on Tucson Real Estate, Tucson Real Estate Agents, Tucson Residential Real Estate, Tucson Commercial Real Estate and more. Tucson Real Estate is affiliated with Scottsdale Arizona Real Estate Agent [http://www.e-ScottsdaleRealEstate.com].

One of the first questions you’ll ask yourself when you are looking at a new property to purchase is: What is this property worth? That is a different question then: How much can I pay? And it’s still different then: What can I get this property for? But all of those questions need answers before you put in an offer to purchase a new property.

How an investor chooses to value a property can depend on the size of the property or the sophistication of the purchaser. We rely on the simple methods, both because we are new to commercial investing, and because we’re looking at small properties. But, simple doesn’t mean less reliable or less accurate when it comes to commercial valuation.

Essentially, there are three ways to value a commercial property:

1. Direct Comparison Approach

2. Cost Approach

3. Income Approach (which includes the DCF method and the Capitalization Method).

The direct comparison approach uses the recent sale details of similar properties (similar in size, location and if possible, tenants) as comparables. This method is quite common, and is often used in combination with the Income Approach.

The cost approach, also called the replacement cost approach, is not as common. And it’s just what it sounds like, determining a value for what it would cost to replace the property.

The third, and most common way of valuing commercial real estate is using the income approach. There are two commonly used income approaches to value a property. The simpler way is the capitalization rate method. Capitalization Rate, more commonly called the “Cap Rate”, is a ratio, usually expressed in a percent, that is calculated by dividing the Net Operating Income into the Price of the Property. The cap rate method of valuing a property is where you determine what is a reasonable cap rate for the subject property (by looking at other property sales), then dividing that rate into the NOI for the property (NOI is The Net Operating Income. It’s equal to income minus vacancy minus operating expenses). Or, you could figure out the asking cap rate of the property by dividing the NOI by the asking price.

For example, if a property has leases in place that will bring in, after expenses (but not including financing) an NOI of $10,000 in the next year and comparable properties sell for cap rates of 6% then you can expect your property to be worth approximately $166,666 ($10,000/.06 = $166,666). Or, said another way, if the asking price of a property is $169,000, and it’s NOI is estimated at $10,000 for the next year, the asking cap rate is approximately 6%.

Where this gets tricky is when properties are vacant, or where the leases are set to expire in the upcoming year. This is often when you are forced to make some assumptions. (We’ll save how you deal with this for another day.)

The other income method is the DCF method, or the Discounted Cash Flow method. The DCF method is often used in valuing large properties like downtown office buildings or property portfolios. It’s not simple, and it’s a bit subjective. Multiple year cash flow projections, assumptions about lease rates and property improvements and expense projections are used to calculate what the property is worth today. Basically, you figure out all of the cash that will be paid out and all of the cash that will be brought in on a monthly basis over a specific period of time (usually the time you plan to hold the building for). Then you determine what those future cashflows are worth today. There are computer programs like Argus Software that help in these types of valuations because there are many variables and many calculations involved.

For the small investors, like us, using a combination of comparable property sales and income valuation using cap rates, will provide a reliable valuation. The real issue is convincing the seller that they should sell based on today’s income and today’s comparable properties. In the case of a mixed use commercial building we just tried to buy, the seller was pricing their property based on assumptions that leases will renew in the next 6 months at substantially higher rates and that the area of the property will continue to improve making the property more desirable. Unfortunately, we don’t buy properties hoping for appreciation. We buy properties today because the property will put more money in our pocket each month then it takes out, and the property fits within our investing goals.

By: Julie A Broad

About the Author:
Julie is an active real estate investor and loves sharing her investing tips, stories and lessons. Get her free Starter Tips Guide and Newsletter at http://www.revnyou.com