If you’re new to commercial real estate financing, you’ll want to get a firm understanding of the differences between a residential and commercial mortgage loan. Residential real estate uses a debt-to-income formula for judging your ability to repay a loan while commercial real estate is based on the debt coverage service ratio formula to qualify. This means that to qualify for a commercial loan, you’ll have to know what your projected return on investment (ROI) will be when making a commercial property purchase or refinance. The cash flow generated from your commercial real estate property will be one of the factors in determining both the value of the property as well as its future return. The type and amount of your commercial loan is also dependent on other factors, including your business and personal credit history, your net worth or financial strength, the type of property and its overall condition, its cash flow, the geographical location of the property, and the general economic outlook of the local market.
The first step to purchasing or refinancing your commercial property is to know exactly how you’ll use the property. What type of property will you acquire? How will the property be used to improve your cash flow and financial goals? How long will you hold the property? Will you be an owner/tenant or just an investor? And do you have an exit strategy? These are all questions you’ll want to think about before applying for your commercial financing.
After you’ve established the market need and use for the property, you’ll also want to analyze its current and future cash flow that will contribute to your ROI. So give us a call today and we’ll help you get started an answer any other questions you may have.
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