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Frequently Asked Questions
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What is the most important number in the commercial marketplace?
How much money do I need to buy an apartment?
Why will a lender finance 70% of the purchase price if they have 80% financing products?
What's the most important factor in a commercial loan?
How do I get the best commercial rate in the market?
Should I use a Commercial Loan Broker or go directly to a Commercial Bank?
What is the most important number in the commercial marketplace?
The Debt to Service Coverage Ratio (DSCR, DSC, DCR or DSR). This number is calculated by taking the Net Operating Income (NOI) and dividing it by the Total Debt Service (the mortgage payments). Or, DSCR = NOI/Mortgage Payments.
The ensuing number should be 1.2 or higher.
NOTE: Use at least a 35% expense ratio against the Gross income to arrive at the NOI. If the expenses are higher, use the higher number.
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How much money do I need to buy an apartment?
In today's market you need at least 20% down to buy an apartment building. If there was a 100% financing product, I wouldn't be a commercial loan broker, I'd be out buying all the properties I could. In addition, you need have a Debt To Service Coverage Ratio of 1.2 and higher.
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Why will a lender finance 70% of the purchase price if they have 80% financing products?
All commercial loans are driven by the cash flow. While you can get 80% apartment loans, if the cash flow won't suport 80% financing they'll lower the loan amount to what the cash flow will support.
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What's the most important factor in a commercial loan?
I asked this question years ago from a bank representative. His answer holds true more today than ever; "Getting funded"!
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How do I get the best commercial rate in the market?
It's all about timing. Most people will call around for rates taking days and days. Let's say you reach the end of the "calling line" and you re-contact the lowest rate lender only to find the rate has gone up a quarter to a half-point or more. You start yelling, but you said 6.25% now it's 6.75% why did you lie and on and on.
Well, you're at fault. Sorry, but it's true. Rates change daily. It's because the underlying indexes that the rates are built on change daily. I've seen the underlying index change 20-30 basis points in one day.
On a $1MM dollar loan, a 20 basis point change could mean an extra $9780 in mortgage payments over a 5 year period. Or, on a 10 year fixed rate loan an extra $19,560 over the course of the fixed rate period.
So what's the answer. Read the answer to the question: Lender vs Broker?
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Should I use a Commercial Loan Broker or go directly to a Commercial Bank?
Of course I'm biased but use a Broker! Better yet, utilize Crown Commercial Finance! Let me explain.
You utilize a commercial broker to take advantage of SPEED and Product Knowledge! A good commercial loan broker, like Crown Commercial Finance, will have several loan sources at the ready. We should have the advantage of knowing where the lowest rates can be found. I know I do.
In the Question that was posed about how you can get the lowest interest rate, I had an example of the cash flow difference in a $1MM loan amount based on a 25 basis point swing upwards in the rate. Say a 6.25% vs a 6.5% interest rate.
Let me illustrate. Here you are with your pen, pad of paper and maybe a cup of coffee going through the phone book and calling lenders for their interest rate. Let's say it takes you 5 days in calling and waiting for return calls to complete your list. If the first or last lender you called had the best rate could you lock in the rate today? NO.
It will take another 3 to 5 days to get you a Letter of Interest and Rate Lock Agreement for you to sign. So, it could take you almost 2 weeks before you're in a position to take advantage of a rate lock. And that's if a rate lock is available. Did you remember to ask that question? Or will you now have to re-contact all the lenders again to ask if you can lock the rate.
Oh, and forget about knowing that your property, or you, may not even qualify for the loan. In which case you've wasted a whole lotta time.
On the first call with you, Crown Commercial Finance will know where to go immediately for a loan. If we don't know, we'll tell you. We'll ask you for a few items to pre-qualify your loan and in 3-4 days we can have a Letter of Interest and Rate Lock Agreement in your hands. In the example above it would take you up to 10 business days.
Suppose between the time I provide you with a Rate Lock Agreement and when you can navigate the commercial marketplace and get the same agreement, the rate rises just 25 basis points. Then on a five year loan it costs the same to use Crown Commercial Finance then to go directly to a bank. On a ten your loan, you just cost yourself $9,000 over the life of the loan.
Here's a secret. Utilize our Exclusive Flat Fee Agreement and same even more money. Call Crown Commercial Finance today and ask about our Exclusive Flat Fee Agreement.
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