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As real estate agents and investors know, the right financing can determine whether a deal closes or collapses. We regularly hear stories of an investor finding the ideal property, just to have the sale fall apart due to inadequate financing. With the right banking strategies and approach, this type of deal loss can be avoided.
Target the Right Banking Partner
Oftentimes buyers assume that if their deal is declined by their bank, they’ll hit a wall with other lenders as well. But what we know is that some financial institutions use higher test rates when qualifying investment properties. They may also vary in their default vacancy, management and maintenance rates, which are utilized to determine debt servicing capability. Consequently, if a client isn’t talking to the right bank, they could be declined their requested amount and require a higher cash down payment, making the investment less attractive overall.
With the right lender and amenable test rates, it’s possible to secure the amount needed to make the investment worthwhile and profitable, even if another bank has given the deal a pass.
Blend Property and Business Income
Banks sometimes take a narrow view when evaluating a real estate financing proposal, only considering cap rates and market rent. But with current cap rates low, and rents not keeping up with the increased sales prices, buildings are only cash flowing enough for 50-65% of the purchase price. This can make a deal appear untenable.
However, if a portion of the property is owner-occupied (greater than 25%), it is possible to utilize the buyer’s business income and balance sheet to help make the numbers work from a banking perspective. In order to make up the difference (even up to 100% financing in some cases), its necessary to package the proposal to highlight the owner’s ability to bolster the building’s cash flow with their corporate earnings.
Engage an Advocate
With ever-increasing lending options in the market, it can be challenging for buyers and agents to stay current on which banks are the best fit for a transaction, what to highlight in a proposal, and what terms to target. The process of DIY financing can be time-consuming, and an additional load while managing the other complexities of a real estate transaction. At Ashdown Capital, commercial financing is all we do. We build lender relationships and knowledge of their offerings, and we know where to place a deal to get it done quickly and efficiently. If you are a real estate agent or investor, connect with us before your next transaction to learn how Ashdown Capital can ensure it closes smoothly and on-time.