These loans are specialty loans, generally used for short term financing, or for repositioning financing on home home or building.
Commercial lending is not as difficult as it seems. There are large financial institutions that make million-dollar loans on apartment houses and commercial buildings. The biggest hurdle is analyzing the income stream. The seller is going and was it one way. The lender will analyze it another.
The seller wants to use all of the income, either actual, or anticipated. As far as a vacancy factor, he wants to use actual if it’s favorable to him. The lender on the other hand, wants to use a percentage of the income for expenses, and for vacancy.
The value of the property, as determined by the lender, is what the loan amount will be based on. You can pay more for the property, but you do it with your own cash.
The appraisal is very very important on a commercial building or apartment building. The expenses of the appraisal are high, and there may be other inspections needed as well. If the property is not in good repair, the repair cost will have to be accounted for somehow. Repairs may even have to be made by the seller prior to the closing.
It’s best to submit your own photos of the buildings, right from the beginning. Take the pictures you think the appraiser would take, including the street scene. If there are glaring problems, the appraiser’s gonna find them anyway, so it’s best to take pictures of those items as well. Therefore, the lender goes into it with an idea, that you are truthful, for starters, and that you’re willing to disclose the negatives. If your loan will be turned down because of property condition, it’s better to do it early on, before you spend any money.