As a mortgage broker, I have the pleasure of seeing really a number of potential loan transactions. I employed the word "potential," for the reason that not all of them work out. Basically, there are very a few turkeys in with the swans!
A popular scenario is a refinance or a buy where the investor comes to me with one thing like: "Man, this is the Ideal property in the location, it's worth $5 Million Dollars, and I'm purchasing it for $3 Million! I require a 90% loan and I want it NOW!" OK ... so I've exaggerated just a bit. In reality the worth of the property will probably be accurate for the marketplace, but I'll nonetheless get the request for the high loan to value.
Till recently, I most likely couldn't have gotten a 90% loan on a commercial property except in the limited case of a Small Business enterprise Administration guaranteed acquisition loan. Initial, due to the fact no 1 supplied a 90% loan on commercial property and second, since the property most likely wouldn't have supported the debt service.
The big alter in that scenario has been the advent of the "modest balance commercial lender" in the last couple of years. They blend commercial and residential underwriting techniques to get higher LTVs. I'll save an write-up on this type of lender for later since I want to focus on the cause why a conventional commercial lender does not definitely care how fantastic of a deal the investor is obtaining in a specific property. It is since there is a pretty standard difference in philosophy between lender and investor.
An investor is concerned with maximizing the return on his equity. No matter whether through leverage, adding value by generating improvements, or adding value via enhancing a property's cash flow, the goal is to make as significantly dollars on the equity investment as attainable. The return he receives is commensurate with the risk he takes with his equity investment
A lender is concerned with something entirely numerous: Obtaining paid back! A lender approaches a loan as an "investment," as well. In reality, in the loan business enterprise we sometimes call our lenders "investors." But these investors strategy their investment from the standpoint of managing their risk in return for an acceptable rate of return: The note rate on the loan. The property that the investor views as a growing asset the conventional lender views solely as security for the loan. (Once more, I'm not talking about private lenders who may have other motivations).
So when you hear an investor say some thing like: "I don't know why they did not give me the loan! The property is worth SO considerably and they can constantly take it back if I don't pay!" Properly, the reality is that the lender does not want the property back ... they just want their capital back, as agreed.
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