Alternative Financing Options for Commercial Real Estate

Despite the fact that banks are not lending they used to on construction projects and commercial real estate there still exist many alternative financing options for the commercial real estate investor who is willing to do some leg work and research. The following are a list of alternative funding sources that are being used in today’s market.

1. Commercial Loan Modification Bank loans are simply not an option for many commercial real estate owners who have seen the values of their properties drop between 30% and 50% over the past two years. Many commercial property owners now owe more on their commercial loans than the property is worth. The most affordable solution for commercial real estate owners who want to stay in business and hold on to their commercial property is a commercial loan modification. A commercial loan workout can lower the interest rates on the commercial loan by as much as 5%, convert the loan to interest only, defer payment all together and lower the balance on the loan. Banks do not want to take back commercial loans. They are more amenable than ever to facilitating workouts that allow them to keep a conforming loan on their books and avoid default.
2. IRA and Retirement Accounts. It is now easier than ever to tap into retirement accounts for the purchase of real estate. There are legal services that give business owners and real estate investors the ability to transfer money from their 401(k) and IRA to a C corporation. Once the funds are deposited into a C corporation they can used to purchase real estate without paying taxes or penalties due to the transfer. It is important to seek the counsel of a tax professional to ensure that you are abiding by all laws and regulations.
3. Stimulus Money. There are many stimulus programs now available from the state and federal governments that may assist the commercial real estate investor, developer or business owner. Low income multi-family projects may qualify for tax breaks and grants from the county or city government where they are located. The American Recovery and Reinvestment Act of 2009 set aside funds for small companies working in alternative energy.
4. U.S. Small Business Administration (SBA). While most other kinds of traditional financing have seen major cutbacks, SBA loans are actually increasing in today’s economy. Government guarantees have increased all the way to 90% as part of the recovery act. The SBA’s 504 program is a useful investment vehicle for owner-occupied business real estate which allows the owner to put down as little as 10%.
5. Seller Financing. Many commercial real estate owners are finding that they need to sell properties to cover the expenses of maintaining another property that under performing. These owners are forced to sell many times because they are unable to find refinancing. Many of these commercial real estate owners will also be open to the prospect of offering seller financing at a very affordable rate.
6. Friends and Family. It can often be awkward and uncomfortable to ask a relative for a loan. However, they often will trust you and now there are social lending websites that will create a formal loan document between the lender and borrower.

How to Pick a Commercial Loan Modification Company

Knowing how to pick a commercial loan modification company can be a difficult task. There are many factors to consider and the most important is to first decide whether you are good candidate for a commercial loan modification. Many commercial real estate owners have seen their property values decline between 30% and 50% depending on where their properties are located in the country. The major reason for the decline in commercial property values for most people is the vast increase in vacancies seen for multifamily properties, office buildings and retail centers.

The economic recession has forced many businesses, large and small into bankruptcy and many renters in apartment buildings have decided to take on roommates or move back in with family. The second reason for falling commercial property values is the fact that it is now extremely difficult to find financing for any kind of commercial real estate. For example, just a few years ago it was common to see commercial loans underwritten with loan to value ratios of 85%, now the new standard is 60%. Most commercial loans are 5 or 10 year loans that balloon. This means that in 2010 there will be a record high number of loans ballooning and no banks or lenders ready to provide financing on these properties. For many commercial property owners the best option that they have is to initiate a commercial loan modification. The apartment building owner who has seen his occupancy fall from 85% to 50% has no chance whatsoever right now of refinancing his property without resorting to a hard money lender whose rates average between 10% and 20%. Hard money loans for most business owners under financial hardship are not a realistic solution that will allow him or her to stay in business.

A commercial loan modification offers the property owner the possibility of extending the terms of his or her loan with the lending institution while lowering the interest rate dramatically and occasionally even lowering the loan principal. Compared to losing the business or paying astronomical interest rates with a hard money lender, a commercial loan modification is the commercial real estate owner’s best option. However, before signing on the dotted line, a commercial real estate owner must do their homework and find out exactly who will be negotiating with their lender and how much experience that company or person has actually performing successful commercial real estate loan modifications.

Experience is the key to success in commercial loan modifications. If you type in “Commercial Loan Modification” into the Google search engine you will find dozens, if not hundreds of companies that are now offering commercial loan modification services across the United States. As of right now, this is an unregulated industry that doesn’t require any kind of licensing or qualifications. This means that literally anyone can put a sign on their door and call themselves a commercial loan modification company or expert. It is truly a case of caveat emptor. The commercial real estate owner is wise to begin his search by investigating the background and experience of each company that he is considering doing business with. Remember, the best salesman may not do the best job on your commercial loan modification.

Ask these questions about the commercial loan modification company:

1) Does the commercial loan modification company have lawyers on staff?

2) Does the company only do commercial loan modifications or is most of their business conducted doing residential loan modifications?

3) Does the commercial loan modification company have references from successful commercial loan modifications that have been performed?

4) What are the backgrounds of the key executives? Do they have a long career and track record in the commercial real estate industry?

5) Does the company offer a money back guarantee on their services?

6) Does the company have qualified and experienced lawyers on staff?

7) How is the Google reputation of the company? What kind of information comes up in the search results for Google when you type in the company name?

Has the company published articles or information in any recognized industry journals or websites?

Ask these questions of the person who will be performing your commercial loan modification negotiation:

1) Who is the actual person that will be negotiating with the bank on my behalf?

2) How many years of commercial real estate experience does this person have?

3) Does the commercial loan modification negotiator have any industry designations such as the Certified Commercial Investment Manager (CCIM)?

Over the past six months, commercial banks and lenders have been watching as defaults increase on their loans and commercial mortgage backed securities.

Commercial property owners are now taking prudent early steps to avoid their commercial loans going into default.  They are looking ahead at upcoming maturity dates.  Many commercial property owners that we deal with are merely victims of the general downturn in the larger economy and the recent dramatic decrease of commercial real estate values across the United States.  Commercial property owners have begun to contact their banks and lenders directly to try and modify their commercial loans.  This approach, unfortunately, is usually unsuccessful.

When commercial property owners call their lenders in an attempt to facilitate a commercial loan modification they are usually frustrated by speaking with someone at the bank who is actually not in a position to approve a loan modification in the first place.  Many people that I speak to actually report the sad fact that they are unable even to have their phone calls returned by anyone at all.  Those property owners who eventually are able to speak to someone that has the authority to approve a commercial loan modification have told me that they are usually dismissed handily and are not even taken seriously by the lender.  The reason that many lenders are unwilling to negotiate the terms of a commercial loan modification with most borrowers is because the banks are inundated every day with calls from unscrupulous commercial real estate owners who are attempting to modify their commercial loans without any real economic hardship.  In other words, the banks are being bombarded with requests from owners to modify their commercial mortgages who have no real need to modify their commercial loans.  These owners are trying to take advantage of the current economic situation for their own benefit.

At Commercial Loan Modification USA we work with commercial property owners in all fifty states to facilitate effective commercial loan modifications for our clients. We use the following guidelines while working on your behalf:

1. We identify the proper contact. Many times lenders will assign a servicer to handle regular loan management. This is usually the case for CMBS-originated loans.  Once a loan is in default it is sent to a special servicer that might consider an extension or modification.   Knowing who to call from the beginning can make all of the difference between a successful loan modification and an eventual foreclosure.
2. We clearly present a case for the borrower’s hardship. Calling the bank and demanding a new interest rate just because you can’t pay the mortgage is not the way to begin negotiations.  After interviewing the property owner and clearly examining the economic situation surrounding the property we create a detailed report explaining the reason for economic hardship.
3. We treat your lender as a partner, not an adversary. A commercial loan modification that allows the owner to continue to stay in the property and not enter default is in both party’s best interests.  Therefore, it is our practice to treat the lender as a partner by demonstrating how the owner’s business model, asset structure and operations have been changed to help them survive temporary market conditions.

Find out how if  commercial loan modification is right for you by requesting our free report “Commercial Loan Modification — is it Right for me?”

What is Obama’s commercial loan modification plan? This plan is only for the residential marketplace. So, what does a Commercial Property owner do?

Commercial Properties, although not as widely publicized as their younger sibling the residential modification,  still represent a very large market place. More and more commercial notes are coming to fruition and need to be refinanced.

Many commercial loans were cast at the time when the economy was in a much better place. And because not even the best analysts could have imagined the bottom, most banks and private investors were able to loosen their requirements for a commercial property owner to secure a loan. By doing this, they were able to charge higher rates and balloons. What none of these lenders ever imagined is that they would be sitting on all this bad paper. And in an effort to control losses are willing to negotiate the loan on their books. What this means for a commercial property owner is the bank or lender in an effort to avoid for closure is now willing to recast a commercial property owners loan in the hopes that this will allow the property owner to continue to make timely payments and in the long run out live this recession.

Commercial property owners need to take advantage of this bad economy by trying to renegotiate the terms of there loan while, as they say “the iron is still hot!” It is always wise for a property owner to seek the help of a commercial loan broker/ firm to do the renegotiating of your loan. With the right help you could be looking at a substantial decrease in the rate of your loan and the monthly payments. Commercial loan modifications are a great way for a struggling commercial property owner to re adjust their current loan and reduce their monthly payment, thus increase their cash flow.

Commercial Loan Modification Lingo Part 1

A commercial loan modification is when a commercial loan is altered or modified to create a new loan agreement between the lender and the business owner. A commercial loan modification is designed to make the monthly loan payments more affordable to the business owner and possibly prevent the loan from going into default and/or foreclosure. A commercial loan modification may also be referred to as a commercial loan workout or a commercial workout. A business owner must qualify for a commercial loan workout, however, there are commercial loan modification professionals and firms who can help determine eligibility.

Commercial loan modifications are often pursued to avoid foreclosure. A foreclosure is when the lender reclaims the property paid for by the commercial loan and attempts to sell it to regain their investment. Before going into foreclosure, the business owner goes into default. Default is when the business owner has missed multiple monthly payments on their commercial loan. Once a business owner is in default, they should seek help in contacting the lender to consider a commercial loan modification. The person to contact is a commercial loan modification professional.

REQUEST YOUR SPECIAL REPORT TODAY: Is a Commercial Loan Modification Right For Me?

A commercial loan modification professional is someone who works for an established commercial loan modification company. A commercial loan workout professional has experience working with commercial loans, commercial loan modifications, bank negotiations, and forensic audits. A forensic audit is a detailed look at your loan payments to make sure the lender did not violate any state or federal laws, including but not limited to: The Truth in Lending Act (TILA) and the Real Estate Settlement & Procedures Act. (RESPA).

Apartment Investing For Long Term Wealth

Hi there new apartment building investor,

Have you been watching the news lately?

The economic front is looking pretty grim right now. Stocks are
sliding. The feds are intervening but it doesn’t seem like the
falling prices in the residential sector will stop any time soon.

From my experience in investing I have learned that during
downturns like this the intelligent investor can actually position
him or herself to see great returns in the years to come.

But…you have need to look beyond the headlines and base your
investment decisions on reality.

Are you ready for the challenge?

There are hundreds of thousands of people, right now, being
displaced from their homes due to foreclosure.

***And the reality is that people will always need a place to live!.

Where do you think these displaced people are going to live?

***In apartments.

As an apartment building investor you will be in a position to
offer these people a great place to call home while reaping the
financial rewards of your foresight for years to come.

I hope you enjoy this mini-course lesson on buying your first
apartment. And if you are truly serious about getting a first-class
education in apartment building investments then I highly suggest
you order the full E-course “Buy Your First Apartment Building
E-course” by visiting:

“Buy Your First Apartment Building E-Course”

The sooner you begin, the sooner you will be on the way to reaching
your goal of having your own cash flow generating apartment building.

Investing In Apartment Buildings Today

In today’s volatile financial markets the savvy investor needs to
look beyond traditional financial vehicles such as stocks and bonds
to ensure long term capital growth and security. Ownership of a
multi-family apartment building can be a great investment strategy
as part of a larger well diversified portfolio. Unfortunately,
many novice commercial real estate investors have been deterred
from apartment building investment with thoughts of weekends spent
painting or even trying to collect past rent from overdue tenants.
Nothing could be further from the truth. There are some surprising
facts about apartment building investments that will completely
change the way you view this unique investment vehicle.

Warren Buffet once famously said that he prefers to invest in a
market “when there is blood in the street”. In other words, the
investment guru looks for opportunities while others are looking
away. Residential real estate markets across the United States are
in a tail spin. Foreclosure rates are at record highs in many
metropolitan markets. Nobody knows if there is an end in sight or
if more families will be pushed from their homes due to rising
mortgage payments and an economic slowdown. Instead of buying into
a weak residential housing market while prices are still declining,
a strategic investment made in a medium sized apartment building
allows the investor to provide much needed housing, to a potential
base of millions of displaced people.

Even with a slowing economy and business cutbacks people always
will need a place to live. Demand for rental property has never
been higher. According to a recent United States census,
currently one-third or 36 million of all households in the United
States are renter-occupied. In fact, a full 83% of all households
under age 25 rent and 55% of households between 25 and 35 are
renters. The growing population of senior citizens will also
continue to depend on rental housing as a less expensive and less
burdensome alternative to home ownership.

In contrast to residential homes, many apartment buildings can be
purchased for a price that is well below the replacement cost.
This makes older, well run apartment properties more competitive
with newly constructed properties that must charge higher rents to
cover their mortgage payments. In addition, newly constructed
apartment buildings can bring up the value of existing properties
and increase the value of your investment.

One of the greatest advantages of an investment in an apartment
property is the fact that you will be able to leverage your
investment. Even as the sub prime residential mortgage market is
crumbling, banks are more than eager to lend money on a good
apartment building. Banks will generally lend up to 80% of the
purchase price and in some cases will actually allow the existing
owner to hold up to 10% of the purchase price in the form of an
owner financed second mortgage. This allows the investor to
purchase the property for as little as 10% down. Try getting a
bank to loan you 80% for the purchase of common stocks.

As with any real estate investment, apartment buildings not
withstanding, leverage is one of the primary benefits to ownership.
A bank will supply you with 80% of the purchase price on an
apartment building. For example, if you purchase an $800,000.00
property with a $600,000.00 mortgage and $200,000.00 cash, and the
property increases in value by $24,000.00 after one year, that’s a
3% increase in value but a 12% increase on your $200,000.00
investment.

Don’t forget about cash flow when tallying your potential rates of
return on an apartment building investment. Cash flow is simply
the money left over each month after you pay your operating
expenses and mortgage. You can put that money in an interest
bearing account to increase your overall rate of return or make
improvements on the property to increase its value.

The time is now to add an apartment building to your investment
portfolio so that you may capitalize on the fast changes taking
place in the US economy.

If you are truly serious about getting a first-class education in
apartment building investments then I highly suggest you order the
full E-course “Buying Your First Apartment Building E-course” by
visiting my website here:

“Buy Your First Apartment Building E-Course”

The sooner you begin, the sooner you will be
on the way to reaching your goal of having your own cash flow
generating apartment building.

Also, please feel free to email me personally with any questions
you have.

Order the full course here at
“Buy Your First Apartment Building E-Course”

Sincerely,

Ted Karsch
Creator of the “Buy Your First Apartment Building E-Course”

Buy an Apartment Building — How to Buy an Apartment Building with Intelligence

DSCR and Apartment Building Investments - What is Debt
Service Coverage Ratio?

As a commercial finance consultant I speak with new apartment
building investors on a daily basis whom respond to one of my
flyers or visit my website. Typically, here is how the
conversation unfolds:

Investor: Hello Ted, my name is “first time apartment building
investor” and I am calling because I was visiting your website and
was interested in the loan program you are offering for
multi-family properties.

Me: Great, tell me about the apartment building you are purchasing.

Investor: Well, I found this great 38 unit apartment building in
Austin, Texas. My realtor told me that the gross income from the
property is around $500,000.00 and the taxes are about $15,000.00.
The asking price is $5,000,000.00. I am willing to put down 20% of
my own money and I need a loan right away because the realtor said
there are other serious buyers looking at the property. What do I
need to get a loan on this building?

Me: Have you figured out what the DSCR for the property?

Investor: The what?

Me. The Debt Service Coverage Ratio is the number that banks look
at to determine if the apartment building will pay for the
property’s annual expenses and mortgage payments. DSCR is figured
by dividing the (NOI) by the annual debt service of the property.

…………………………………………………………..
…………………………..

This is where I gently advise my potential client to perform more
due diligence on the property by obtaining the income and expenses
on the property for the past few years so that we can determine
exactly what the net operating income is.

Here is how the property financials break down:

Gross Rents $500,000

Annual Gross Revenue $500,000

Minus 5% Vacancy Rate $25,000

Actual Gross Income $475,000

Real Estate Taxes $7,500

Insurance $2,500

Maintenance $2,500

Exterminator Service $2,500

Up Keep $2,500

Utilities $2,500

Off Site Management Fee 5% $25,000

Replacement Reserves

$200 Per Unit X 38 Units $7,500

Total Expenses For Operation $52,500

(NOI) Net Operating Income $422,500.00

The net income on this property includes all of the property
expenses except for the monthly debt payments or “debt
service”. The “debt service” is simply the principal and interest
payment on the mortgage paid over a one year period of time.

Loan Amount: $4,000,000

Interest Rate: 7%

30 Year Term

Debt Service = $319,345.20

To figure out the DSCR, divide the NOI ($422,500.00) by the Debt
Service ($319,345.20).

NOI $422,500.00/ Debt Service $319,345.20 = DSCR of 1.32

With a 20% buyer down payment this building has a DSCR of 1.32.
This basically means that the building’s income will cover all of
annual expenses including the loan payments while still showing a
profit. Banks
are eager to lend money on a property like this. A DSCR number of
1.0 would indicate that the building is breaking even and a DSCR
lower than 1.0 means that the building is losing money. Commercial
lenders require that an apartment building have a DSCR of 1.2 or
higher.

Armed with this information, the diligent investor is one step
ahead of the herd. Preparing an accurate loan package is an
essential ingredient to your success as an apartment building
investor and calculating the DSCR early on in the process will save
you a lot of time and headaches.

Order the full course here at
“Buy Your First Apartment Building E-Course”

The Zen monks in Japan have a saying: “if you see the Bhuda in the
road, kill him.” There are a lot of so called “Gurus” or self
proclaimed real estate “Bhudas” in the real estate investment
education business . You have seen their late night infomercials.
These “Gurus” offer you outrageous promises of how easy it is to
get into this business. I am not one of those real estate
celebrities. I am just a normal guy. I don’t drive a Ferrari or
take a helicopter to my Manhattan roof top office to meet with
Donald Trump. And, if I ever become that successful in this
business I probably won’t have time to write these courses anymore.

While designing my course, which is an ongoing education for me
also, I have researched all of the available information about
purchasing, managing, financing and selling apartment buildings.
I also have relied upon my years of experience buying and selling
commercial real estate of all kinds. I have put everything I
learned in an easy to understand course.

Check out what you receive and learn with the full course here:

“Buy Your First Apartment Building E-Course”

My goal is simple. I want to provide you, the beginning apartment
building investor with all of the tools and all of the knowledge
you will need to begin investing in apartment buildings.

I’m not like those other guys. I drive a Pontiac not a Ferarri,. I
don’t have glossy brochures or fancy shmancy websites. What does
any of that have to do with serious real estate investing?

What I do have is REAL and USEFUL information.

If you use my course information correctly, and work hard, I know
you will be successful. If that means buying a sports car –
please, by all means enjoy yourself. Personally, I got involved in
real estate investing to give myself more free time to enjoy life
and not be tied down to a 9 to 5 job.

What I have done is try to separate the junk and hype from the REAL
INFORMATION.

Order the full course here at my website:

“Buy Your First Apartment Building E-Course”

Sincerely,

Ted Karsch
Creator of the “Buy Your First Apartment Building E-Course”

Sincerely,

Ted Karsch

Buy Your First Apartment Building E-Course

Below is a brief excerpt from today’s Bloomberg news. Dividends are being slashed at the highest rate since 1958. This means that many people nearing retirement won’t have the money they need. What are you doing to secure your financial future?

Oct. 22 (Bloomberg) — Dividend payments by companies in the Standard & Poor’s 500 Index may plunge 10 percent this quarter, the biggest decline since 1958, as bank failures and slowing economic growth stifle payouts, S&P said.

“We’re seeing an enormous amount of cuts,” New York-based Silverblatt said. “There is a lot of pressure on dividends, and a lot of people are concerned about their cash flow.”

If you are truly concerned about your own financial situation, you need to begin taking action right now to make sure that you have a steady stream of dependable income in the future.

Become a student today and begin learning how to take your financial future in your own hands. Control your own wealth and destiny.

Enroll Now at Buy Your First Apartment Building E-Course

If your still not convinced, see if any of these 15 reasons strike your fancy:

Top 15 Reasons to Invest in Apartment Buildings Right Now

1) You control the cash flow. Unlike other, passive, investments such as stocks and bonds, the owner of an apartment building is the CEO. If you need more cash flow and the local market will allow it, the owner can raise rents.

2) If you don’t want to manage the day to day operations of the apartment complex then you can delegate the management duties to a qualified and licensed real estate management company.

3) It is possible to get seller financing. Many apartment building owners are savvy investors and are more than willing to offer seller financing. This makes the purchase of an apartment building easier without having to qualify for a bank loan.

4) All of the units are under one roof. This fact makes management easier and more cost effective.

5) Forced Appreciation. Apartment buildings are valued according to the net operating income. This means that a motivated apartment building owner can directly increase the market value of his or her investment by cutting or reducing various maintenance costs. Value can also be increased by making strategic improvements to the property.

6) The stock market stinks. The stock market has been a roller coaster ride for most investors. Why trust your hard earned money to chance? Apartment buildings offer a relatively low risk investment with a high rate of return.

7) Your job stinks. If you are employed full time working for someone else you can never be sure how long you will have your job. The income from a well managed apartment building is relatively stable and secure. Most tenants will be on a year long lease.

Appreciation. During times of high inflation, such as now, apartment buildings tend to see their value increase. Historically, rents tend to rise along with the prices of other goods and services.

9) Lower cost per unit. Typically, apartment buildings have a lower cost per each unit then residential homes or triplexes and duplexes.

10) You control the quality and quantity of your income. As an apartment building owner you can control the quality of your income. This means that you determine who rents from your building and who doesn’t. The quality of income from a person employed as a school teacher for 15 years is different then the quality of income derived from a shiftless day laborer. You decide.

11) Maintenance on apartment building units can be a lot more affordable then maintenance on an equal number single family home units. Generally, contractors will be more competitive on their bids for large jobs, under one roof, then they would be for an equal number of small jobs spread across town.

12) Retirement money. An apartment building can be a steady source of income during your retirement years. An apartment building investment will allow you to work only part time while still receiving a full time income. If you need an affordable place to live you can live in one your units.

13) Pay half the taxes you now pay. Standard tax rates of 30-50% don’t apply. You will be able to pay the capital gains rate of 15% by buying and holding.

14) Pass on the wealth to your children or grandchildren. Have you thought about how you will pay for your children’s or grandchildren’s college education? Apartment buildings can be easily passed on to your heirs. If they lack the experience or desire to manage the building you can have management already in place for them.

15) Foreclosures. Millions of families are now facing foreclosure. These displaced people will need a place to live. They will most likely be renting because mortgages are harder to come by while home prices are still dropping in most areas of the country.

I urge you take a small step today to fortify yourself against the uncertainty of the world economy. Enroll in the “Buy Your First Apartment Building E-Course”

Buy Your First Apartment Building E-Course
You will soon be on your way to building your real estate investment portfolio. The risk is all mine. If you are not completely satisfied you can return the E-Course for a full refund within 30 days.