Tag Archives: prequalify

Multifamily Loan Product Finances 100% of your Renovation Costs

We are very excited to offer a multifamily loan product that is perfect for purchases of multifamily properties.

Many purchasers of multifamily properties have renovation and improvement plans. Their goal is to improve the property and therefore increase the rental income as a value-add investment. If you are in a similar situation, this multifamily loan may be the perfect fit.

Cover Your Full Multifamily Loan Cost of Renovations

• Loan to Value vs. Loan to Cost: Loan-to-value (LTV) compares the loan amount to the expected market value of the completed project. On the other hand, loan-to-cost (LTC) compares the financing amount of a commercial real estate project to its costs. Lenders are typically limited to a maximum LTV/LTC or a a combination of both. However, this multifamily loan product will cover up to 100% of the renovation cost. This delivers a higher overall leverage for the borrower, while at the same time maintaining the desired total leverage parameters for the lender. Structuring the loan in this innovative way benefits borrowers and lenders alike.

• Why Should I Care about LTV/LTC ?The LTV value affects your rates and your collateralization needs. Lenders look at the total value of the property to determine how much money they are willing to loan. Getting to their sweet spot means more lenders want to offer financing. When we structure this loan and pitch your financing needs to our lending partners, they respond positively. They like the LTV and are willing to come in with extra financing for worthy renovation projects. Lenders are especially keen on renovations that will enhance future profitability and stabilize the property’s value.

• Call Us Before you make a Bid:  If you can swing it, let us know at GRP Capital when you have your eye on a multifamily property. We can evaluate your financing needs. You will have a better sense of what type of financing you will be able to acquire. In this way, you can use the information prior to even making an opening bid on the property.

If you would like to discuss this multifamily loan product with us, feel free to contact our team.  We can conduct a business evaluation, reach out to our lenders, offer advice on bidding and secure financing for you. An initial business evaluation is complimentary.

signing documents like title insurance

Title Insurance: What do I Need to Know?

Have you heard the one about the friend who couldn’t close his loan, because but there was an issue with title insurance? Don’t be that friend!

All lenders require Title Insurance.

FAQs about Title Insurance:

• Who benefits from title insurance? Well, it depends. Lender’s title insurance protects the lender and owner’s title insurance works for the borrower.

• What’s the difference? Lender’s title insurance is mandatory and owner’s title insurance is often optional. We recommend always purchasing the Owner’s Title Policy. This is not a place to save money.

• What is the purpose of title insurance? Title insurance ensures that the borrower has the clear ownership of the property. Additionally, title insurance also protects the lender by ensuring their claim on the property if they are not repaid for the loan.

What could possibly go wrong with the title?

We have seen many issues that make title complicated. We call issues with title a “cloud on title”. Title agents are always looking for “clear title”. Things that cloud a title could include:

  • errors in the survey
  • boundary disputes
  • liens placed on the property (before you even purchased it)
  • old tax liabilities
  • improper settling of estates after a death or divorce
  • Previous EIDL loans

What is the process of obtaining title insurance?  Your title agent will run a preliminary title report on any property you are financing. Then, they will see if there are any claims on the property. Afterwards, the title officer then has to remove anything that would cloud title. Sometimes, there are things the seller has to do. As you can see, title issues can be complicated. Thus it is critical to hire a competent attorney to advise you when engaging in financing loans.

• How do borrowers pay for title insurance? Title insurance is based upon the value of the loan. Every year, the lender renews their title insurance and this cost is included in your loan. The price lowers each year as the loan is paid off. Borrowers only pay for Owner’s insurance once, at closing.

If you are considering a loan for purchase or refinance or construction and would like to discuss your plans, feel free to contact our team.  We can conduct a business evaluation and even prequalify you for a loan at no cost to you. We will help you determine your DSCR and LTV and match you to appropriate lenders for your projects.

Debt Coverage: How DSCR has Eclipsed LTV

Have you been hearing terms like debt coverage and DSCR more than ever before?

Did you already know about loan to value or LTV and are now wondering about this new alphabet soup?

Well, here is what is going on!

DSCR stands for Debt Service Coverage Ratio. It’s actually a very simple fraction. Your DSCR is your net operating income (NOI) divided by your annual debt payment. So, if your business netted $500,000 annually and you pay $400,000 yearly in mortgages and other long-term debt, your DSCR would be 1.25.

What to know about your Debt Coverage:

• What’s a good DSCR? “Good” DSCR figures can vary by industry and even location. In general, lenders are looking for a DSCR of at least 1.15. However, sometimes there are extenuating circumstances, like ongoing long-term renovation, buyouts of partners and other issues.

• Hey, I have a great LTV! We talk with our lending partners every day. Three or four years ago, the most important number in securing financing for our clients was the LTV or loan to value. This figure is a ratio that expresses the value of your property and business divided by the amount of the financing you are requesting. However, lenders are telling us now that they are not as concerned with LTV and are much more carefully eyeing DSCR!

• Why is DSCR as important or more important than LTV now?  Within the last several years, commercial real estate had been rising rapidly in all sectors from office space to hospitality to everything in between. But the changing economic climate has thrown disorder into many sectors. Lenders and appraisers have become much more conservative and are not assuming high valuations like they used to. Instead, they are looking at what is tangible and real: how much a business earns and how much it costs to pay for debt.

What happens if my DSCR is too low?  Sometimes a property’s debt service coverage ratio is below the lender’s minimum. At the same time, the client wants a loan at the upper limit of the LTV. When this happens, the lender will have to reduce the loan amount in order to maintain the minimum DSCR. This is referred to as the loan amount being debt service constrained.

• Business and Personal Cash Flow: Lenders of course evaluate your business DSCR. But they also evaluate your global cash flow. They add up the income from all of your businesses and determine your expenses, including debt payments, both business and personal.

Don’t Forget Your EIDL!

• EIDL is Debt:  If you had an EIDL (Economic Injury Disaster Loan), this shows up as debt on your balance sheet and is included in your DSCR calculations. Fortunately, the low rates on EIDL’s make the payments for them relatively affordable, but they do add to your indebtedness and affect the DSCR ratio.

• What happens to my previous EIDL’s if I’m selling, buying or refinancing? This varies depending on your debt coverage and your circumstances. To learn more about these issues, see this blog about EIDL‘s and new loan transactions.

If you are considering a loan for purchase or refinance or construction and would like to discuss your plans, feel free to contact our team.  We can conduct a business evaluation and even prequalify you for a loan at no cost to you. We will help you determine your DSCR and LTV and match you to appropriate lenders for your projects.

Business Evaluation: Call Us BEFORE You Bid

Why are we offering you a free business evaluation? Many clients are looking right now for the next project. Are you one of these people?

If so, we love to hear from clients who are ready to take on new challenges. These might include expanding current businesses or adding new projects to portfolios. However, we find we can be even more helpful to clients when they contact us even before bidding on a business or property.

Before You Make an Offer:

• Business Evaluation of the subject property: We can help evaluate the business. We examine the documents you have or with your permission, we can also contact the current owners. Then we begin to determine the business’ strengths and weaknesses. We provide an independent opinion on reasonable projections for expenses and revenues as well as advice on possible challenges.

• Understanding You as a Borrower: Our clients’ comfort and trust in our process is critical. In order to foster the very best relationships, we spend a lot of time getting to know our clients. We want to understand your business goals as well any concerns you might have. As a result, we will then know what your priorities are in terms of financing and finding the best loan products for you.

• Considering Hidden Costs You Might Not Have Considered:  We have the benefit of closing hundreds of loans. Therefore, we have experienced potential hiccups and can pass on that wisdom to you. We can offer information about whether a survey will be necessary, timely advice about insurance in your local marketplace or the willingness of lenders to fund your business proposal. Our experience and advice can save you time, money and frustration.

Free Prequalification:

• Getting to Know All of the Partners:  We will discuss your organizational structure and make sure it is set up in the best way to find an appropriate lender. Having this conversation before making a bid can prevent having to make changes in the ownership of businesses. It also allows for a free and honest conversation about what will be expected monetarily from each of the partners during the initial setup of the business.

• Choosing Guarantors: Not every partner should necessarily be a guarantor. We can guide you to select guarantors based upon the merits of your project.

• Review Personal Financial Statements: Again, we help all our clients to establish their own personal financial statement, which we then (as needed) share with potential lenders. This process helps us work together to determine what each client can afford and how to best show their personal assets and liabilities to greatest advantage.

If you would like to schedule your free business evaluation, contact Veeraj Patel, our Credit Analyst at 239.294.1664.

If you are considering a loan for purchase or refinance and would like to discuss your plans, feel free to contact our team.  We can conduct a business evaluation and even prequalify you for a loan at no cost to you.