Top Six Questions to Ask BEFORE Submitting Offers on Commercial Properties

Top Six Questions to Ask BEFORE Submitting Offers on Commercial Properties

If the answer is NO to 2 or more of these questions, you DON’T have a deal.

Have you ever spent time on deals that did not have a chance of closing, but you didn’t know it? Let me share with you six important questions to ask before you submit an offer on commercial property. These very basic questions can help you avoid spending time on dead deals that will drain your time, energy, money and will ultimately destroy your commercial real estate business.

1. Does the buyer have good credit?
OK, you probably don’t need me to tell you that times have changed and no area of real estate or the economy is excluded. In times past, your primary borrower’s credit would not necessarily make or break a deal because the property qualified on its own merit. If it was a good property that fit the program guidelines and you could show cash flow, you were good to go! Well, that’s all over now. Not only does the property need to qualify but now your borrowers do as well. If you have a primary borrower with very low credit scores, it will be difficult, if not impossible to get to the closing table. For many quality loans, a score of 680 is required but 700+ is preferred. I know this can be difficult for many investors because they typically do not have high scores due to credit volume. But, I can help you with that too. Be sure to ask about my credit repair service. We work with a law firm that has demonstrated great results for the past 18 years in credit repair. Be sure to ask the question – what is your credit score?


2. Does the buyer have down payment money?
We have had 100% no doc loan programs in the past for commercial properties, similar to what you have seen with residential. They’re gone, probably never to return again. The amount of down payment needed will vary depending on the property type and the loan program. For example, SBA can go 90% in most cases, quality, conventional financing is typically 80%, bridge loans can go 75-80% and hard money is around 65%. These are general guidelines so be sure to give me a call for more specifics. I’ll be glad to review your project and let you know what can be done. The point is, if someone is applying for a high loan to value, especially if its non-owner occupied, it probably won’t go through. Be sure to ask for specifics concerning their loan approval.


3. Does the buyer have sufficient, documented experience?
This isn’t necessarily something new but certainly something for you to ask your prospective buyers. If they are purchasing multi-family properties and they have never owned this type of property before, it will affect loan approval and/or loan to value. Also, if the property is out of state or not in close proximity to the buyer, you may have some big problems with rookie investors. As for owner-occupied commercial, experience or training in their line of work is also critical.


4. Does the buyer have sufficient, documented net worth?
Let your buyers know that they will need to provide up to date financial statements, typically within 90 days. Not only are lenders looking for experience but they are also looking for net worth to weather the storms. In many cases, the lender wants to see a net worth equal to the amount of the loan. Also, if the down payment will wipe out liquidity, you will have problems making it to the closing table.


5. Can your buyer document income with full tax returns?
As previously mentioned, your buyer must have down payment money. But they must also be able to document their income with full tax returns for owner occupied commercial properties. For investment properties, full financial statements on the property and up to date rent rolls will be required. If you are listing the property, have these things on hand and be sure to ask the seller to update you with this information as it becomes available. It will save you and your buyer a lot of time when they are working through the loan approval.


6. Is your buyer cooperative, respectful and willing to accept that today’s lending environment has changed?

I know. All of your buyers are very nice people. But, are they up to date with the fact that things aren’t what they used to be. I talk to borrowers every day that are accustomed to walking into their local bank and walking out with the funds they need to buy the next property or do the next big deal. They are angry and resentful that things are not as they used to be. Or, they didn’t know this was happening and are shocked and disappointed. Well, many banks are not funding at all or they have limited their risk in certain property types and can no longer meet the needs of their borrowers. Unfortunately, the banks are reluctant to turn down their good customers for fear of losing them to another banking institution. So, your loan approval process will drag on forever and a day, never to close! Help your buyers understand that their banker hasn’t turned their back on them for personal reasons but because they just absolutely cannot fund the deal right now and it may be a while before they can. This is not a buyer’s market. This is a lender’s market! As a commercial lender, we can close the deal and not damage the bank’s relationship with their customer. So, don’t let a buyer slip through your fingers because their bank won’t close the loan. Give me a call and let’s see if we can get them to the closing table.


I hope you have found this information helpful. It is not all inclusive but certainly gives you a good start before you submit a contract and tie up a property with a buyer that cannot come to the closing table. Please feel free to call me with any scenarios. And remember, as a branch of one of the largest correspondent lenders in the country, if we can’t do it, it probably can’t be done so let us help you avoid wasting time on a lost cause. I’m here to help you.


Jamie Harrington
United Carolina Group, Inc.
340 NC Highway 16 South
Taylorsville, NC 28681
jamie@unitedcarolinagroup.com
http://www.unitedcarolinagroup.com/
828-632-0650
Toll free - 888-538-4663

See our other blogs http://www.100dayswithJesus.blogspot.com/ and http://www.allthingspossible1926.blogspot.com/.