Beginners look at commercial loans as a means of realising a dream. They long to own their own restaurant, pub or bed-and-breakfast, and look to their friendly local bank manager for help. Cue frustration and disappointment. These days, commercial loans are decided by back-room underwriters, who use cold calculation to decide your credit worthiness. To the seasoned pro, it’s just another day at the office; a handy way of adding to their portfolio. To get the best deal, you need to prepare in advance. Here are a few tips to help you on your way to securing a commercial loan:
- Have your business plan, forecasts and projections, financial records and statements, history of the property’s income, and the appraisal when you approach lenders. Make sure these are accurate and up to date. This lets the bank know that you mean business. If you make them think about your application and make their own assumptions, they are more likely to decline the application.
- Put your own money down. You’ll need at least a deposit and settlement costs. Lenders want to share the risk, not own it entirely. They will usually not finance more than 75% of the appraised value of the property. Personal guaranties of the principal owners may be necessary for a commercial loan.
- Get your own appraisal of the property. This will provide you with an unbiased estimate of what the property is really worth. You’ll then know whether it’s worth the financial risk.
- Apply for your commercial loan as soon as you can. Commercial lenders exaggerate their speed. They’ll quote you forty-five days when it’s more likely to be three months!
- Never rely on just one commercial lender. Commercial lending is very subjective.
- Lenders near the property generally offer better terms. With those farther away, it’s a case of ‘out of sight, out of mind’.
- Have a lawyer who specialises in property investment go over everything. You need someone who knows the business and who can be an advocate on your behalf.
- Be certain that you can afford to keep your business going and still meet your payments. Properties must show sufficient debt-repayment ability. If the property is to be occupied by a sole tenant, the lender may want to appraise that tenant’s finances.
- Check with your local small business administration for any potential grants or low interest commercial loans you might be able to wangle.
- Negotiate. You do not have to take the first offer you get. Getting a commercial loan is like buying any other goods. People are sometimes too in awe of banks to haggle. There’s no need to be afraid; they can only say no!
Beginners look at commercial loans as a means of realising a dream. They long to own their own restaurant, pub or bed-and-breakfast, and look to their friendly local bank manager for help. Cue frustration and disappointment. These days, commercial loans are decided by back-room underwriters, who use cold calculation to decide your credit worthiness. To…
Here are Seven common sense guidelines to eliminate credit card debt:
1) DO make a budget listing all your fixed expenses. Rent or mortgage, car insurance, car payments, mobile phones, utilities, day care, fixed loans, etc. Then try to estimate a reasonable budget for discretionary items like food, entertainment, clothes, etc.
2) DO make a second list of all your outstanding balances and sort by balance, minimum payment, and interest charges if you have multiple credit card debts.
You may think the wisest thing to do is paying off the credit card with the highest interest rate. However, there are 2 preferred methods to follow.
First, you should reduce the number of credit cards. Pay off the smallest balance first with larger payments until the number of credit cards you have in debt is down to one. Your ultimate goal is zero, or when you can pay your monthly balance in full every month.
The other strategy is to pay the balance on any card exceeding 50 percent of your credit limit because balances above this level may affect your credit score.
3) DO use cash or a debit card linked to your bank account. You can’t spend what you don’t have.
4) DO look for extra income. Most likely your rent or mortgage is your biggest expense, so consider a roommate if possible. If you like your occasional privacy, consider an International student for shorter periods of time.
5) DO look for the little things that add up in your expenses. Maybe change your phone plan if you are constantly going over the monthly minutes? How about that $3.50 latte or cappuccino every work day? That’s almost $1,000 a year!
6) DON’T sign up with a new credit card with a 0% Interest Rate for the first 6 months.
You probably receive a lot of junk mail enticing you to sign up with a new credit card with a 0% Interest Rate for the first 6 months before it jumps to 18% or even higher. Then 6 months later you would transfer your huge balance to another piece of plastic. Unfortunately, the biggest risk is they are simply giving you more credit to spend, and the number of cards and liability increases.
Unless you are extremely disciplined, this doesn’t really work as you end up bigger and deeper in the hole! Reducing the number of credit cards is the goal.
7) DO consider refinancing your home (if you have one) and consolidating all your debts into one
Logically, a 4.50-5.50% home loan is a lot less than 18% on a credit card. You can’t spend what you don’t have. You will be asked to have all your cards cut up (except maybe one with a small credit limit) and you have reduced the number of credit cards. You are now paying back that debt at far lower interest rates – often we find that the overall new monthly mortgage payment incorporating the consolidated debts is lower or at least equal to what you were previously paying out across several loans (credit cards included). Plus – the temptation has now been removed as you no longer have the credit cards!
Here are Seven common sense guidelines to eliminate credit card debt: 1) DO make a budget listing all your fixed expenses. Rent or mortgage, car insurance, car payments, mobile phones, utilities, day care, fixed loans, etc. Then try to estimate a reasonable budget for discretionary items like food, entertainment, clothes, etc. 2) DO make a…
Don’t you wish you had a crystal ball that showed you what is to come in the future? A simple wave over the crystal ball, the mutter of a magic word, and your entire future is there, revealed in front of you. Now that you know what is to come, you can prepare and move accordingly so you can be ready for what the now identified future holds.
Unfortunately, this crystal ball does not literally exist, but in commercial real estate there are many tools that you can use that act like a crystal ball. They can show you the future in an indirect way so you, too, may pla
n and move accordingly in order to take advantage of the market place.
Fining tuning your commercial real estate crystal ball is really a matter of paying attention, doing some basic research, and being on top and aware of all elements in your comfort zone, or concentrated area of focus and influence. It does take vision and an element of creativity to really fine tune your crystal ball, and, for some, it is the best aspect of commercial real estate! Being able to predict, envision, and then create something that at one time did not even exist, not even in an idea, and then search out the resources to create and put the plan in motion is a commercial real estate insider’s dream. When done effectively, it can be very satisfying and lucrative!
You should already be doing many things that assist you in predicting and planning for the future, which is extremely important in commercial real estate. If you can see an opportunity coming before it actually presents itself, then you are able to prepare for that opportunity before anyone else, and reap the benefits. These things may include driving the streets of your community to see what land and buildings are for sale, what centres are vacant for leasing, attending planning and zoning meetings, reading the local newspaper for economic and real estate changes or trends, as well as researching other cities and how their market may affect yours in any way, shape or form.
As a real estate insider, it is pertinent that you are up to par, and even an expert in your comfort zone. These things listed above are how you are constantly informed and a step ahead of other real estate people, as well as your own market.
Besides doing these things religiously, and always analysing the data that you collect, there are a few other specific tools that will allow you to see into your commercial real estate future and identify opportunities that others will miss.
The first is a city’s or town’s future land use plan or map that shows the future zoning and use for all the land within a city or town’s limits. Some cities may not have one if they are too small and not looking for growth. However, most cities do have master use plans that are used to dictate the entire future of a city’s economic make-up. The reports that go along with these offer a wealth of demographic information as well which provides great insight into the future development of an area. For example, here is the link to the Melbourne Growth Plan documents http://www.planmelbourne.vic.gov.au/Plan-Melbourne . In addition, check out the actual planning websites for your specific state, city or region. Here is Victoria’s http://planningschemes.dpcd.vic.gov.au .
These maps and report are used to plan for growth so that all elements of a city or town are controlled. Zoning and use may change for operating properties; others may remain the same. There is the possibility of raw land to be annexed into the city, having a specific use, offering huge opportunities to the commercial real estate investor. There may be a need to tear down or renovate old properties, and develop them for a different use.
The possibilities of what a future land use map holds is gold in the eyes of an investor, and extremely important to all those working in commercial real estate. Refer to this map, and actually visit the locations of where there is change to identify opportunities. As every area is different, you will be amazed as to what opportunities will unveil themselves when you bring to it a little vision, creativity, and insider information regarding the zoning and use of a property.
Another tool to see into the future is the economic forecast for your area. By looking at both the past and future per capita income, population growth rates, housing costs and other such data that can be found via the Bureau of Statistics, you can see the overall economic environment of your city or town and how it is performing.
Perhaps a continuing decrease in population means people are moving out of the area, telling you not to invest in new home or unit development in that area. Or, the growth has been so extreme that the area is in desperate need of commercial property in order to support the influx of people. You can definitely plan on how you are going to move in the market with this information by your side.
The final tool I urge you to utilise when predicting your commercial real estate future is already approved infrastructural changes within your city. This will require you to attend city and town meetings regarding zoning, planning, development, etc. There could be discussion of a new development a year or more before it actually occurs, and once you hear about it, you can start putting your own ideas into place.
As I am sure you already know, large, influential, infrastructural changes can greatly increase the land values of properties that surround them. For example, a large shopping centre being developed will increase the value of all the land surrounding it, as well as possibly call for a greater demand of residential units, and an increase in the rental prices that can be charged according to the new market.
Let’s say that you hear two years in advance about a shopping centre that will begin development after it is approved. You are then going to get a jump on all competition, look at the site, the land surrounding it, and the opportunities it may offer. Can you purchase the now extremely cheap land adjacent to this site, or perhaps the poor performing units nearby in anticipation of this new development so that you may benefit from the price increase this major infrastructural change is going to cause?
These things happen all the time, and I urge you to be a visionary and look to the future. After all, this is where a majority of commercial real estate profits are made- by creating something that either wasn’t there, or improving upon what is there.
As you can see, you may not have a crystal ball that does all the work for you, but I promise that if you use these tools and follow these guidelines, you will be preparing yourself for great opportunities that others, quite simply, will overlook. It will take some effort and constant dedication. However, the results that you yield will be worth it. Actually, it is much easier to be the first mover, rather than suffering the increased land prices and changes after a development is already in place or even underway.
Realise your power to predict the future and plan your goals accordingly! You will be successful with these tools, so implement them today.
Author: Melanie Burns
To discuss this article or anything else to do with your finances, please call our office today on 0434 087 735 or email us and we will be happy to assist you.[contact-form-7 404 "Not Found"]
Don’t you wish you had a crystal ball that showed you what is to come in the future? A simple wave over the crystal ball, the mutter of a magic word, and your entire future is there, revealed in front of you. Now that you know what is to come, you can prepare and move…
Commercial real estate is a wonderful, exciting business that can offer a wealth of opportunity for those who look for it! Many people are often hesitant to enter the market of commercial real estate for many different reasons. In fact, there are some major misconceptions about commercial real estate which I am going to address here.Many people who hear about commercial real estate, but aren’t necessarily in the business, often use the expression “location, location, location!” Many people associate this expression as the truth, that the three most important attributes about a property are “location, location, location!”
I am here to tell you – this is absolutely not the case! Now, I am not going to say location is not important, but what if you have a beautiful location for a Bushland retreat, complete with hills, a perfect location for a hotel, and beautiful mountain views? What you want to do to the property is improve it as a weekend getaway for romantic couples with a beautiful hotel, resort, luxury type housing, and perhaps some individual cottages overlooking the bushland. Sounds great, right?
The perfect location- you can’t beat it! But, you learn that the zoning for this property is residential. The use is only one single family residence per acre, and no commercial property allowed. What happened to your “location, location, location?” It flew out the window!
The most important aspect of a property is the use. What is it intended for by designation of the council? It does not matter where the property is, if you cannot get the zoning that is in the realm of your intended use.
It is possible to get properties rezoned, especially as cities and towns change and grow. Be sure to consult with the council to determine if these changes are even possible, because you do not want to buy a property that you cannot rezone, and be left with an unprofitable property on your hands.
Most people believe that commercial real estate is complicated and you need a special education or know how to succeed in the business. Many think that commercial real estate is filled with international finance, heavy and complicated math, complicated tax rules, and forms and applications that are just too complicated to understand correctly.
I am happy to tell you this misconception is the worst, because it puts a road block in front of many people’s aspirations to become a commercial real estate insider. Let me put this misconception to rest. There is math involved, and most of it is not at all complicated: simple ratios, adding, subtracting and multiplying. What is even better is you don’t have to do the math. There are others who can do that for you. The same is true with property management, inspecting the property, and doing the end of year taxes. In fact, commercial real estate is less complicated than residential real estate because you can focus your energies on a single deal that will be worth perhaps 10, 20, even 50 residential deals!
Let me put it into perspective for you. If you owned a business (many of you may), would you create strategies, keep the books, manage the many locations, sell on the front floor, and take out the trash after the day was over? I think not! Commercial real estate is made up of many people whom are there to help you with whatever you need. You must position yourself as a real estate insider, which is a leader in the business.
Another misconception is commercial real estate is management intensive, that you must manage every property you own. Let me tell you when you end up owning 10 or more properties, this is almost impossible to do! You do not have to actually manage your properties yourself, so you can concentrate on creating more deals. Hire a company or agent or set a team in place to take care of this “day-to-day” business.
As you can see, what is passed around in dialogue about commercial real estate is not always true. Before you take everything to heart, be sure to get your facts straight. In fact, many people in this profession speak about commercial real estate as a business in which only the savvy and sophisticated can succeed. They often act this way because they want to keep people out of the market by differentiating themselves. If you were in this position, you would too!
Author: Melanie Burns
To discuss this article or anything else to do with your finances, please call our office today on 0434 087 735 or email us and we will be happy to assist you.
Commercial real estate is a wonderful, exciting business that can offer a wealth of opportunity for those who look for it! Many people are often hesitant to enter the market of commercial real estate for many different reasons. In fact, there are some major misconceptions about commercial real estate which I am going to address here.Many…
Known for his tremendous wealth, ability to put together the largest, most profitable commercial real estate deals, and famous reputation, and whether you love him or loathe him, there is no denying that Donald Trump is the commercial real estate investor icon of our times.
Although we know he has extremely creative financial and investment strategies, and expert legal advice from people such as George Ross, he has more than just the average investor. There are other investors who probably know as much as Donald does, or more. However, they do not have the successful qualities that allow them to create such wealth from commercial real estate and accomplish the goals Donald has.
Donald has three successful qualities that you need to possess to truly create the quality of deals and wealth he is known for. These qualities are his ability to build relationships with everyone he works with, his ability to sell the big picture, and strong, overpowering charisma that takes a room by storm.
Almost any deal can work to your advantage if you work on and develop these skills. You may have strength for one or another. However, in order to have this industry at your fingertips, you must master each one. Success is delivered through the relationship between these characteristics, as one is not as good without the other or by itself.
Being able to build relationships with everyone that you work with is absolutely critical in the commercial real estate industry. You want to rub elbows with the decision makers in your city; those who are in charge of council zoning and planning committees at every level of the city. Get past the gate keepers and speak to the core people asking for their advice and become close acquaintances on a first name basis. These relationships can be implemented before you even think about doing a deal where their influence may be necessary. Relationships will not only get you insider information, but will give way for special favours and a good word to others who may influence your accomplishments.
Charisma is the ability to ignite passion and motivation among all those who are in an ear’s reach of the person. Charisma allows everyone to breakthrough barriers that otherwise would remain standing. Those who are charismatic can make even opposing forces agree on a common goal and move forward ambivalently. Donald can do just this – igniting passion and excitement that lines people up to follow in his direction. He becomes a true leader that others happily follow because they believe in him and his message. This characteristic will let you bring people on board that otherwise wouldn’t even think about working in your favour. It is a very helpful and powerful characteristic to possess.
The final characteristic is selling everyone on the big picture – everyone who is influenced by the value created in the deal. The community, the city, builders, developers, banks and even businesses around the location in which the project is growing all need to understand what is not there currently. As you know, these projects that were once old, dilapidated buildings that did absolutely nothing but bring the city or suburb down, can be turned into multi-million dollar establishments that can change the value of the entire city.
Do you have these qualities? Do you see yourself having the same effect on others as Donald Trump has had on the many people he has worked for? Everyone can master these abilities with a little focus and practice. Study others who are successful and possess these qualities. And remember that they are most effective when working together, not standing alone.
Author: Melanie Burns
Known for his tremendous wealth, ability to put together the largest, most profitable commercial real estate deals, and famous reputation, and whether you love him or loathe him, there is no denying that Donald Trump is the commercial real estate investor icon of our times. Although we know he has extremely creative financial and investment…
You need at least 20% deposit to get a mortgage
In today’s market that is not necessarily true. While it is correct that having a deposit is the ideal situation, if you are currently renting and just cannot save enough for a deposit there are many lenders that offer low deposit home loans. Borrowers can often borrow up to 95% of the purchase price which is a tempting offer for any first time home buyer wishing to get into the property market. A low deposit home loan may often attract higher interest rates or more stringent policy restrictions but if you are confident you can afford the repayments then you can achieve the dream of owning your first home with a minimal deposit.
Fixing your rate is safer than a variable rate
When interest rates are high, many are tempted to fix their rate to protect against further hikes. All is well with the world and as a borrower, you feel incredibly happy that you are not affected by the next huge rate increase. The problem here is that if rates fall, you end up paying a higher interest rate compared to the variable rate. Fixed rate home loans do offer some security in an uncertain market, and also allow borrowers to know exactly what their mortgage repayments will be for the next one, three or seven years. Everyone is different and has varying financial requirements so talking through your options with a mortgage broker is recommended.
A bad credit history means you won’t get a home loan
Let’s get one thing clear. A bad credit history is not good. Any missed or default payments on credit cards or mobile phones are recorded. Even if the amount was small or years ago, it affects your credit rating. However, not all is lost. Lenders will consult your credit history and feed this into their own credit scoring system. If it turns out there are issues, the lender may take a closer look and may still approve a home loan if you meet the requirements. Similarly, non-conforming lenders provide an alternative option for borrowers who have been refused finance by traditional lenders. Non conforming lenders are an ever expanding avenue and offer in many cases quite competitive products providing opportunities which were once deemed impossible.
I can still get a home loan even though no income, because I have several assets
Yes, you may have a collection of stamps from the 1920’s to be proud of, but it’s not going to convince a bank to lend you $400,000. Assets aren’t the same as income, and it’s your regular income that lenders get excited about. Lenders will only lend as much as people can afford to repay, and a first time home loan is a big commitment. The amount of income earning capacity you have will ultimately determine how much you are able to borrow.
Get the lowest rate possible
Be cautious with low interest rates. A cheap rate is attractive, especially to first home buyers, but take note because these low rates often come with less features on the home loan, reduced flexibility and higher fees. They may only be an introductory rate and once that honeymoon period is over you could find yourself paying a much higher rate. Often a loan with a slightly higher rate but more features will save you money over the life of the loan.
Credit cards are okay if I pay them off.
When it comes to credit cards it’s not all about the balance on your card, or cards, it’s the total available credit that counts. Having a large range of credit does not necessarily equate to a good credit history. Often it’s the credit card limit, not the balance that counts. So even if you pay off all your credit card debts, if you still have a high limit this can affect your servicing and chances of approval.
I can roll my personal debts into my mortgage
So you have a car loan and credit card debts, and you want to roll all of these into your home loan? Makes sense, as the interest rate on your mortgage will be lower than your current rate. But, first home buyers are not usually able to just throw all their debts together like this. Usually you have to build up equity in the property and then use this equity to service the additional debt.
A low-deposit home loan means you don’t need any savings.
This one is most certainly not true. First home buyers get excited and tend to think that a 95% per cent loan means that they do not have to pay much money upfront. But, a 95 per cent home loan only covers most of the cost of the property, and not all the purchase costs such as stamp duty, legal fees, property inspection fees and lenders mortgage insurance (LMI). You will still need some savings to cover these costs as well as the 5% deposit.
Start by paying just the minimum amount
Many first home owners pay only the minimum monthly repayment, as they adjust to the new financial commitment. However, at the start of the loan you are really only paying interest so by paying more than the minimum, you quickly reduce the amount of interest and principle on the loan. As interest is calculated daily, repaying twice a month instead of once per month can also save you thousands in interest.
Mortgage insurance protects the borrower
Lenders Mortgage Insurance (LMI) protects the lender, not the borrower. Borrowers who can put down a 20% deposit should not need to pay LMI but borrowers with any less than this will pay LMI to the lender. The less deposit you have, the higher the premium.
Offset accounts save you money
Home loan offset accounts are a great idea, but only for those borrowers who are responsible with their money and have a regular income. If you have a shoe addiction or tend to buy all your mates extra rounds at the pub, you may want to think twice about offset accounts. Your income goes straight into your home loan account, pays your mortgage repayment and then you can use the extra funds for other expenses. However, if you have bad spending habits you could end up spending more. Be careful not to end up in negative equity because you didn’t monitor your spending.
Refinancing saves you money
Perhaps you have just bought your first home, and you are enjoying all the benefits of your own home. Your first time mortgage is going well, but perhaps you fixed your rate six months ago and now rates are coming down, or maybe you want to switch to a different lender. Refinancing sometimes costs money. In the way of exit fees for existing home loans, and settlement fees for the new loan. However, the market is quite competitive currently and some lenders are giving all the power to the home owner. Shopping around and refinancing your home loan can save you thousands over the life of you loan, but can also end up costing you more, so talk your possible choices through with a mortgage broker before making your decision.
Author: Melanie Burns
To discuss this article or anything to do with your finances, please call our office today on 0434 087 735 or email us and we will be happy to assist you.
Myth #1 You need at least 20% deposit to get a mortgage In today’s market that is not necessarily true. While it is correct that having a deposit is the ideal situation, if you are currently renting and just cannot save enough for a deposit there are many lenders that offer low deposit home loans. …
Wouldn’t it be great if you could find an investment property before it went onto the market? We reveal how you can find secret property sales.
If you are a buying property for yourself and want to get access to unlisted properties you need to get clever.
1. Become better friends with your local real estate agent
As the key contact between sellers and buyers, agents are the first to be aware of properties for sale – yet so many people are shy about handing over their mobile number at open inspections.
How are you ever going to be made aware of deals or changes in a vendor’s expectations unless you make contact with the agent? You need to persuade the agent that you are very serious about buying an investment property.
Make sure they know you are pre-approved for finance, are serious about buying and can make a quick decision followed by a signed, unconditional contract.
People are often scared about telling an agent what their budget is, as they think the agent will make them pay more. I always say that I can buy up to any amount if it is the right deal, but I am only prepared to pay what it’s worth – and I will get an independent valuation to double check the figure.
2. Letterbox drops
Do what the agents do and letterbox drop in the areas you want to buy.
If you are a serious buyer for the right investment property, the vendor can save time and money by going directly to you. It takes more personal effort and will cost you some money, but spending a few hundred or even a few thousand dollars could get you a great property at a great price.
A lot of vendors always think their property is the best in the street and want a fortune for it, but some do not keep up with the market and want something more realistic.
3. Get organised
Make sure you are ready when the right deal comes along. Get pre-approved for finance and have your valuer, building inspector and strata inspector all in place so they can check you are buying the right property at the right price.
You are never 100% guaranteed of any deal when it happens, so at some point you have got to make a decision and jump in. The more organised you are, the more likely that decision will become easier.
4. Tell friends, family and colleagues you are looking to buy
Often those close to you will know of someone else looking to sell, so spread the word. People love talking about property, so if you mention you are looking every time you talk to someone it won’t be long until you make the right connection.
5. Pay a professional
If you buy an investment property once every few years and a buyers’ agent does it every day and has all the industry contacts, who do you think will buy better? Sometimes you’ve got to spend a dollar to make two.
To discuss this article or anything to do with your finances, please call our office today and we will be happy to assist you 0434 087 735 e: firstname.lastname@example.org