Yahoo finance API is not available right now, please try again soon...

I became a millionaire in my 30s, and here’s the best advice I can give you about investing

I became a millionaire in my 30s, and here’s the best advice I can give you about investing

Courtesy of Chris ReiningChris Reining. Some people spend their whole life living paycheck to paycheck (and they send me really sad emails about this). In their 50s or 60s they realize they'll need to work until they're so old and sick that they just … Continue reading at

Why General Motors Might Stop Investing in Brazil

What’s happening: General Motors (NYSE:GM) president Dan Ammann told a Brazilian newspaper that GM will reconsider a major investment plan for Brazil if the country’s economic and political situation doesn’t improve. The key details: GM announced in 2014 … Continue reading at

I became a millionaire in my 30s and heres the best advice I can give you about investing

Image by Jim Surkamp

Value Agnostic Investing

Big cap value trap heightens risk for holding high-flying stocks. Investors have been banking on low quality earnings. Poor quality earnings presage trouble ahead for equity investors. The failure of U.S. and European equity indexes to break to new highs … Continue reading at


Seven steps to start investing in shares

Believe it or not, now is a great time to begin investing in shares. The volatility is delivering lots of cheap stocks. If you’ve never invested in shares before and have the courage to dip your toe in the water, here are seven steps to get you started. Continue reading at sentiment index: speculators less bullish on U.S. dollar – The weekly sentiment index published on Monday revealed that speculators scaled back their bullish bets on the U.S. dollar in the week ending February 19. According to the report, 34.8% of investors held long positions in EUR … Continue reading at

Investing For Beginners (Introduction to Investing)
The Best Guide to Getting Started Investing You'll Find AnywhereWhat Does Your Retirement Look Like?If you are like most America…

The Compound Effect
No gimmicks. No Hyperbole. No Magic Bullet. The Compound Effect is based on the principle that decisions shape your destiny. Littl…

The Neatest Little Guide to Stock Market Investing: Fifth Edition
The essential stock market guide, now updated with even more timely and necessary informationNow in its fifth edition, The Neatest…


How are people investing in MFs? Find out

Indian equity investors, particularly those investing through mutual funds, are known to be notoriously fickle and impatient. When the stock market is firing on all cylinders, neat sums of money are directed into equity funds. The fascination only lasts so … Continue reading at

Disciplined Investing Amid Uncertainty in Markets

Feb. 22 — Nick Lyster, chief executive officer for Europe at Principal Global Investors, discusses his thoughts on investing amid uncertainty in markets. He speaks with Francine Lacqua on Bloomberg Television's "The Pulse." Continue reading at

Ajay Piramal spots value in venture capital investing

MUMBAI: The family office of Ajay Piramal is stepping into venture capital investing to get a slice of the fast-growing entrepreneurial ecosystem in the country. Known as being one of the savviest value investors in India Inc, Piramal is backing the newly … Continue reading at

AT&T investing USbn in business solutions in 2016

Mexican holding Gentera S.A.B. de C.V., formerly Grupo Compartamos, brings together companies engaged in the microfinance industry, which provide loans, savings services, insurance, working capital and a range of payment options, as well as financial … Continue reading at

* For an experienced SF Bay Area real estate agent visit
Like me on Facebook:
Thumbs up, favorite, share, subscribe and make a comment!

Most people who are ready to invest in commercial real estate are usually somewhat familiar with the home loan process. That’s commonly because they might have bought a home or two in the last few years and they remember the mounds of paperwork that go with it. Although there are a select few similarities, getting a loan for a commercial property is a bit different.

When you get a commercial loan for investment you have to qualify has a borrower, just like a home loan. However, there is one huge key difference. A residential appraiser values the property primarily based on other sold comparables. The primary key difference is that even though comparables are considered with a commercial appraisal, a commercial property is valued primarily off of the income it produces.

This income property makes 0k NOI. We know that based on a cap rate formula we will make 7.5% on our money with no loan on the property. However, we plan on having a loan…the question is will the PROPERTY qualify?

We check the rates and find out we can get a loan for 70% of the value at 7% interest, amortized over 25 years. We’ll have an annual debt service of just about 9k. This brings our cash flow to just a bit over k/year giving us a 5.21% cash on cash return rate. The key difference you must be aware of is the Debt Coverage Ratio, or DCR. The DCR is basically a calculation of how much of your yearly mortgage payment is covered.

Here’s the thing about investments…they don’t always work out perfectly, and banks know this. So for the bank to protect itself, it might set a HIGHER DCR for you to achieve. This way, if something happens and your income property isn’t making as much money as you thought, the bank is still covered.

We have an income of 0k before deducting about 9k/year for mortgage. We now have a DCR of 1.26, which is unacceptable to the bank. Instead, they want at least a 1.35.

Now there’s a few ways to go about this. First, we can put more money down. With another 5% down we can surpass the banks requirements and attain a 1.36 DCR. Also we could pay less for the property. The last two options would be to either get a lower interest rate, or a longer amortization schedule.

The DCR is definitely the key difference between a commercial investment loan and a home loan. However, there is still one other major difference, and that is the loan term. Commercial loans terms can vary. Because commercial properties are usually much higher in value than a home loan, the bank doesn’t want to set an interest rate for 30 years.

They have a much shorter time frame — anywhere from 3 to 10 years. Now, they might AMORTIZE the loan over 25 or 30 years, but the rate they give you is NOT SET for that long. You usually get a lower rate for a 3 year “lock in” rate, meaning for the first 3 years they cannot change the interest rate. Then you pay a little more for 5 years, 7 years, and if available 10 years. This again is when you really need to sit down and figure out what your future investment plans for the property are.

So what happens after this 3 or 5 or 7 year time frame? One of two things. The first one is that after your “lock in” time frame, the interest rate on the loan begins to “float”. What that means is that the rate can go up or down depending on the market. The second thing that can happen is that after your “lock in” time frame you will have a balloon payment. A balloon payment is a large lump sum of the remaining balance you owe that you have to pay the bank.

Lastly, there’s one key additional factor that comes into play when you are attempting to get a commercial loan, and that is the tenant leases. If you have four different tenants in a retail strip center, but they are all small mom & pop shops on a one or two year lease, lenders may be a bit hesitant. Compare that scenario to having four different, multinational tenants such as a Baskin Robbins or Sprint store on a 7 or 10 year lease, and banks would feel MUCH more comfortable with the latter.

When you are finally ready to start the commercial loan process, be sure to check with your lender or bank and see what is the common DCR range for the type of property you are thinking about buying. Also, be prepared for the TYPE of loan they offer you — be it one with a balloon payment or one with a floating interest rate. Again, being prepared from the start is the best way for you to ensure make the most of your investment …now that’s good to know.

Contact Davide Pio Today | SF Bay Area Real Estate | 510-815-2000


Tags: , , , , , , ,
Previous Post

Canadian Stocks Are Climbing As Crude Oil Recovers — Canadian Commentary

Next Post
Mutual Funds

Wealth Adviser Daily Briefing: Funds That Lose Less Can Be Winners

%d bloggers like this: