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How To Line Up Funding For Your Commercial Real Estate Deals

We talked briefly, if you watch prior videos, about residential lending and some of the basic mortgage programs. This is commercial lending. This is typically if you see on the screen, typically five units or more. Residential lending is a single family, two family, three, a triple decker or are four units.

Commercial lending tends to be five units or more. It can be something that’s less than five units if it’s held in a special purpose entity like an LLC. If you own the property individually and it’s under five units, it’s typically residential property or residential mortgage broker or a lender could help you. If it is five units or more or held in a special purpose entity like an LLC, then it is commercial lending.

Typically what you find with commercial lending it is performance based. When you’re dealing with residential lending you’re dealing with your credit score. You’re dealing with your debt to income ratio and you’re dealing with loan to value and a couple of other factors that affect you personally.

When you’re dealing with commercial lending, it’s more lenders are making the decision based on the performance of the property. When I say performance of the property I mean what rents are coming into the property? What is the rent roll for the property? What is the total gross rents that the property collects versus the total expenses or outlay of cash needed to operate the property on a monthly basis, on an annual basis?

Typically what commercial lenders like to see is what’s called a debt coverage ratio of let’s say 1 1/4 or 1.25 which means, I’ll give you the simplest example. If you have debt on the property or a mortgage on the property and that mortgage is about $1000 per month, most lenders like to see at least 1250 in income coming in or a 1.25 debt coverage ratio. They also want to see that the property is cash flowing on a regular basis. They want to see that you can sustain the property over a long period of time and that it is going to be successful for you. Again, it has less to do with your credit score and your personal debts. More to do with the property’s performance over time.

What else can we talk about commercial lending? Rates tend to be a little bit higher than residential lending. Typically a half a point I would say from my experience. You’re seeing a half a point, maybe a point more depending on the risk that the lender assumes with the property. Commercial lending can be recourse and nonrecourse as well. Nonrecourse loans means that you do not need to give a personal guaranty. If the property for some reason does not perform, and the note is not paid, you will not be personally liable for that. When you’re talking about residential mortgages, if you do not pay you get foreclosed on and that foreclosure goes onto your credit report there’s a ding there when you go to purchase another property.

If you are relatively new to the commercial lending space, most lenders probably will want you to give a personal guaranty to the LLC or the entity holding the property. Once you have a little bit more experience, or you hit a certain loan volume, a certain loan number, typically a million dollars you can usually look for a nonrecourse loans where you are not personally liable for that entity or the performance of that property if the property does not perform to expectations.

Last but not least, you are typically going to find LTV between 75 and 85% so loan to value ratios between 75 and 85%. Which means unlike residential lending where you can put as little as 0% down with a VA loan or a 3 1/2% down with FHA and 3% down with mass housing, most commercial lenders are going to want to see at least 15-25% what they call a skin in the game. They want you to have some equity into the property right off the top. That equity can be the equity pulled together by partners. You can have several owners of one LLC pulling funds together to make that down payment of 15-25%. That’s a lot of times what you see especially with properties of a million or two or three million dollars where it is unlikely that one individual has the capital or even if they do, wants to risk the capital themselves. You find that a lot of individuals tend to pool money together with two, three or more partners form that LLC to meet that down payment requirement.

That’s commercial lending in a nutshell. If you would like more information on commercial lending, or would like to be connected with some of our commercial lending contacts, please click the link in the description below and fill out the quick form. Tell us a little bit about yourself and we can connect you with one of our contacts, one of our lenders that we do business with.

Financing

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4 Task You Must Complete to Maximize Your Property Sales Price


 

Hi All, I Just want to go over briefly four things that you can do when you’re selling your multi-family. Your two, your three, your four unit, your residential multi-family property. Four things that you can do to make sure that you maximize the price. That you get the most. When putting that property on the market, you walk away with the most money that you possibly can as a potential seller.

Four things that you can potentially do. Let’s start with number one. You can provide a unit vacant. Why would it be beneficial to you as a seller to provide a unit vacant when selling your multi-family? You have two potential buyers when you’re selling, let’s say a three family property. You have the owner-occupant buyer. Someone who’s going to purchase the property, move into the property, move into one of the units and rent out the other two to supplement their income. Then you have the investor. An owner-occupant buyer is almost always going to pay more for the property, their primary residence, the place that they’re going to live, than a potential investor.

Investor’s going to come in and they’re going to analyze the numbers specifically and strictly and say, “Does this property make sense from a financial standpoint and if it does or it doesn’t, I’m going to make my decision based on that.” An owner-occupant buyer is going to move in and make it their own. It’s the place that they live. There’s an emotional attachment to that place. By you providing a unit vacant, you’re essentially allowing them to move in. Without a unit vacant, essentially if all three units are occupied, only an investor can buy that property from you. Basically you’re eliminating the owner-occupant opportunity if all three units are tenant occupied and there’s not a space for an owner-occupant.

The first thing I would say is I wouldn’t go out and necessarily kick a tenant out, but if there’s a tenant moving out and you’re considering selling somewhere around that same time, you know you have a lease expiring in three or four months, it may be a good time to say let’s put the property on the market while I have this potential vacancy and move in at that time.

Number two. Make obvious repairs. If there are some things that need to be done, you are going to maximize your selling price by making sure that the property is shown in it’s best light. That seems obvious to some people but many people don’t do it prior to selling. Making sure that any appliances that are broken, light fixtures, front door, back door, the front porch, back decks, making sure that those things that are quite obvious as soon as you walk up to the building or as soon as you walk inside a unit, this is clearly not the way it should be. Making sure that those things are done prior to putting your house on the market or prior to putting that property on the market is going to maximize your sale.

Prepare for a spring or summer sale. If you are, let’s say it’s January, 2017 and you are moving into, considering selling, you have about three or four months before that spring market hits, that April, May, you really want to preparing your property for that spring marker or that summer market coming up. The reason you want to ideally sell in the spring or the summer, you have a larger pool of buyers at that particular time. Investors are going to be around all year round. But your owner-occupant buyers, if they’re renting an apartment right now and considering buying, their leases typically end sometime during the summer months. You’re going to have a much larger pool of buyers. People typically like to move during the summer when things are easier and not moving in the snow, especially in a place like New England. Preparing yourself mentally, getting your documentation ready, letting your tenants know about the sale, and making sure that you’re getting those things done during the winter months so when the spring and summer rolls around that your house or your property is prepared for that sale.

Last but not least, overpricing your property. Don’t overprice your property. Price it, I would say accordingly. Talk to your realtor, pull comparable sales, what’s going on in the neighborhood, what makes sense for this particular property compared to other sales. When you overprice the property, what you’ll end up with is potentially a stale listing. A stale listing is something that’s been sitting out there for 60, 90 days and now it’s not getting as much attention as it should be. When you do that you actually tend to get a lower sales price then you would have if you just priced the property appropriately from the beginning and sold it as quickly as possible to the best buyers during this spring or summer market.

Again, providing a unit vacant you’re going to get more money from an owner-occupant than you are from a potential investor. Making the obvious repairs. Making sure that your property is presentable and showing in the best light. Preparing for that spring or summer sale and not overpricing your property. Making sure that your property comes on the market at a reasonable and fair price compared to other similar properties that are selling on the market. If you do these four things, you’ll be sure that your sales price is maximized and you’ll get the most money and put the most money in your pocket after the property is sold.

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South Boston’s Multi-Family Sales Are On The Rise. Check Out These Stats!

South Boston Multifamily Sales & Rental Market Report   

Are you a current or aspiring landlord in Massachusetts? No matter how many years you have in the rental business, fully understanding your local market is one the most important thing you can do to ensure your long-term success.  Receiving regular market updates will help you determine when’s it time to buy and when it’s time to sell. It will also allow you to see what your apartments rent for in comparison to your neighbors. Should you be increasing rents? Is now a good time to sell?
Here is South Boston’s multifamily sales and rental market statistics for the last 6 months.

Total Multi-Family Listings SOLD: 24

Average Living Area by Square Feet: 2,958.00

Average Listing Price: $1,308,736

Average DOM (Days on Market): 49.11 Days

Average Sales Price: $1,256,778

Average Rent for 1 Bedroom Units: $2,189

Average Rent for 2 Bedroom Units: $2,828

Average Rent for 3 Bedroom Units: $3,616

Average Rent for 4 Bedroom Units: $4,178

 
I Want To Know My Home’s Value!
 

Want to get a FREE Sales and Rental Market Report for your specific area(s)? Just send a quick email to Contact@MandrellCo.com to receive your monthly report. In the title put the words “FREE Boston Sales Statistics” and in the body, add the up to 3 areas you’d like to receive data for. Your name and email will be added to the next monthly reporting cycle. It’s that simple to stay up to date and ahead of the curve!

Please call us directly at 617-297-8641, for custom reports or questions above the data provided.

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4 Documents You Must Have During A Successful Home Sale

I Want To Know My Home’s Value!

I want to talk to you today a little bit about documentation, preparing to sell your multifamily property, any property in between two and 20 units. Typically, we’re talking about two and four units, residential property, but this also applies to larger investment properties as well. Documentation, getting ready to sell. What are you thinking about? What are the documents that you need to gather? I’m giving you right here is four sets of documents that your potential buyers are going to want to ask you about, your realtor is going to ask you about, so you might as well go ahead and get these documents prepared as early as possible.

The first set of documents that you want are your tenant leases and the rent roll. You don’t necessarily have to provide the actual physical copy of your leases to your potential buyers, but what they’re going to want to know is when did those leases start, when do those leases expire, and then the second half of that is what each tenant is paying. That’s a big part of selling a multifamily. It’s a big factor when potential buyers are buying multifamily, are am I going to be able to move into a unit? If one of the tenants are below-market rent, when does that lease expire and when am I now able to increase the rent. Making sure that you’re collecting that information, understanding when are your leases expiring and what each tenant is paying and being able to provide that information to your realtor, so your realtor can provide that to potential buyers.

The second set of items that you’re going to want to collect are systems warranties. Did you recently have the roof changed? Did you recently install a new heating system or a new AC system? Appliances, did you recently install appliances into any of the units within the buildings and are they still within warranty? That is adding value. If you are able to take those warranties and provide those to the new potential buyer and show this refrigerator was installed last year and it’s still under warranty, that is a great way to provide value, so you really want to go out and see if you can collect any warranties that you have from roof to heating systems to appliances, anything else. Systems maintenance. When was the last time that your heating system was serviced? If you have a good maintenance schedule in place, you should have been documenting that over the years and being able to turn that over to a potential buyer is going to create value and give the buyer a sense of ease knowing that the systems were maintained over the years. That is something else that you should be looking for in preparation for selling your multifamily house.

Last but not least, we live in Massachusetts and then throughout the country, 1978 lead paint law. Lead paint is no longer used after the year 1978, but within Boston and a lot of the areas surrounding us, these homes were built 1910, 1920s, so a lot of them still do contain lead paint. If you have lead paint documentation, if your apartments have been lead paint certified, this, again, creates a lot of value, creates a lot of comfort with your potential buyers and if you can provide that documentation right up front to show them that that’s not something that they don’t have to worry about any longer, they can now move children under the age of six in and not have to worry about the lead paint hazard. That is going to create a lot of value for you. It’s going to help you potentially get a quicker sale and for a higher sales price in making sure that you are also collecting that lead paint documentation as well. Four things, tenant lease and rent rolls, warranties, maintenance schedules, and then a lead paint documentation. If you provide those four sets of items, you should be in really good shape to get your property sold.

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