I have a good connection with the Vice President of commercial banking at a major bank in my area. he was telling me that commercial loans are much easier to get compared to residential. why is that? what deals should i be bringing him so that some money could be made. takinh into account that my credit is not so good
What are the advantages of commercial vs residential
he was telling me that commercial loans are much easier to get compared to residential. why is that?
loans originated on the commercial side are easier because they focus more on the property/asset than residential does. residential, typically, is more concerned with credit, dti, reserves, ltv, employment, and the list goes on and on. commercial lending, however, is weighed more heavily on how the property will perform from a cash flow point of view. for example if you take a triplex to the residential people they’re going to look at YOU as a borrower. if you take a triplex to the commercial people they’re going to look at the PROPERTY as a performer. this doesn’t mean that they just throw money at anyone who brings them a property with a 1.2 dscr and seeking 80% ltv. they’re going to consider who the borrower is and if that person has any experience, etc. there are downsides to commercial lending though. first, typically they only go to 80% ltv, so you’ve gotta come up w/ 20% from your own cash, other properties, seller carry back, whatever you need to do. second, usually commercial loans are only on 20 year notes. that hurts cash flow a little bit, but that just makes you as the rei having to make good deals. if you’re going to get into commercial borrowing it’s all about the deals that you put together. if you put together a good deal finding the money will be the easy part. i’m in a position where getting the money is the easy part, finding the right properties is the more challenging aspect of my business. that’s when the business is really fun!