Apartment Loans

Apartment Loans

Apartment lending varies by property location, borrower strength, LTV ratio, and numerous other factors. In order to determine the maximum loan amount that can be borrowed an underwriter will calculated the property’s Net Operating Income (NOI). This process begins with Gross Rental Income, which includes all rental income, laundry income, and any other recurring income. Once Gross Rental Income is caluculated all property operating expenses must be subtracted to reach the Net Operating Income. Typical operating expenses include: property tax, insurance, utilities, repairs & maintenance, landscaping, property management, administrative, & other miscellaneous expenses. The bank’s underwriters will also take out additional expenses which typically include: 5% vacancy, 5% management, and $100-$300 per unit in replacement reserves based on the condition of the building.

Apartment Loan - Simple NOI Calculation

NOI = (Gross Rental Income – 5% Vacancy) – 5% management – replacement reserves – all other historic operating expenses

With the NOI we can now calculated a DSCR and the final loan.

Debt Service Coverage Ratio (DSCR)

The maximum apartment loan is amount is constrained by the Debt Coverage Ratio which is calculated:

DSCR = NOI / Annual Debt Service

Annual Debt Service = Monthly Principle & Interest X 12

For Apartment Loans the DSCR ration requirement is 1 to 1.20 in some cases the DSCR can be lowered to 1 to 1.15 or lower based on the location of the property & other mitigating factors.

Example Apartment Loan

20 Unit Apartment with a $144,000 NOI.

Loan: $1,570,000 @ 6.5% Rate 30 Year AM

Annual Debt Service = $120,202

$144,000 (NOI) / $120,202 (Annual Debt Service) = 1.20 (DSCR)

Items Required to Initiate and Apartment Loan

• Current Rent Roll
• 2 Full Years Income & Expense Statements + Year to Date Income & Expense Statement
• Color Photos
• Borrower’s Personal Financial Statement
• Borrower’s Credit Score

If you need to speak to an experienced commercial loan officer we recommend speaking with Nick Fitzer of BMC Capital. He can be reached at 206 303 8526 or at nfitzer@bmccapital.com

 

How To Start A NNN Loan

How to Start a NNN Loan

The NNN loan processing start when the commercial loan officer gathers the following information.

Property Information required for a NNN Loan

• Year to Date + 2 years financial statements on the property
• Background summary of the tenant
• Color Photos of the property
• Copy of the NNN Lease(s)
• Copy of the Purchase & Sale Agreement (if a purchase)
• Copy of the marketing package (if a purchase)

Borrower Information required for a NNN Loan

• Borrower’s Credit Report
• Borrowers’ Personal Financial Statement
• 2 years most recent tax returns
• Any relevant 1031 information you have

The information provided will be reviewed by underwriters and a term sheet will be issued if the deal is a good fit for the bank. The term sheet will display: rate, fixed period, amortization, fees & another other relevant information regarding your NNN Loan.

If you need to speak to a commercial loan officer we recommend speaking with Nick Fitzer of BMC Capital. He can be reached at 206 303 8526 or at nfitzer@bmccapital.com

NNN Loans

NNN Loans

Understanding NNN Loans

Every deal is underwritten on a case by case basis. The following factors are considered when structuring a NNN loan.

DSCR (Debt Service Coverage Ratio)

A key component used to determine the final loan amount is the debt coverage ratio of the property itself. The Debt Service Coverage Ratio is defined as:

 Net Operating Income (NOI) / Annual Debt Service.

Net Operating Income is derived from the annual gross income minus all appropriate adjustments for operating expenses and capital reserves. These adjustments are made on a case by case basis when considering the property’s location, lease terms, age, value, & tenant.

Loan to Value

Loan to Value is determined as:

Total Loan Balance / Fair market value (as determined by the appraisal)

Loan to Value rarely exceeds 70% on NNN loans

 Credit Worthiness of Tenant

Lenders will evaluate by the credit worthiness of a tenant by reviewing the tenants financial strength, the number of years remaining until lease expiration, and any other relevant information.

Property Evaluation

The characteristics of the property itself are also taken into consideration when underwriting NNN loans. The property’s location, age, appearance, accessibility, & market are the primary factors that will be considered.

Borrower’s Credit Worthiness

In almost all cases the credit worthiness of the borrower will be evaluated. Credit score, Net Worth, Liquidity, and relevant experience all come into play on NNN Loans.

Lender Contact

If you need to speak to a commercial loan officer we recommend speaking with Nick Fitzer of BMC Capital. He can be reached at 206 303 8526 or at nfitzer@bmccapital.com

How To Get A Commercial Loan

How to get a commercial loan.

A question that we hear all the time is “How do i get a commercial loan?” or “how to i get my commercial loan started?”. That is an easy one, simply call a commercial loan officer and begin discussing your deal. A knowledge able loan officer should be able to ask intelligent questions about your property and begin to formulate a lending solution that will meet your needs.

The process begins by sizing up the deal. Let the loan officer know the desired loan amount, estimated value of the property, location, property type, occupancy, etc. If the deal fits one of the available programs the lender can offer a term sheet stating the details of the transaction.

If you need to speak to a commercial loan officer we recommend speaking with Nick Fitzer of BMC Capital. He can be reached at 206 303 8526 or at nfitzer@bmccapital.com