Insider Tips to Getting High Leveraged Commercial Financing!

The Investor appeal of acquiring real estate often overlooks the main reason for purchasing… Making money! Too many real estate investors often confuse buying real estate with making money. In many cases, they are not the same. The overall strategy of buying low and selling high is only one part of making money in real estate. The longer term money is made by the savvy investor who understands the power of leveraged financing.

Think about this for a moment, most real estate gurus promote courses on finding distressed opportunities, negotiating owner financing and the various reasons why you should purchase real estate. How often do you see articles, or courses, promoting effective leveraged financing?

Let’s start with the purpose and the differences between the zoning of residential and commercial real estate. Residential zoning requires that all loans be collateralized based on the appraisal or purchased value of the property. It also requires that the owner qualify within the lender’s debt to income ratios, along with personally guaranteeing the loan. The hard money acquisition option has some short-term benefits however it is not intended for long-term purposes. The landlord type of investor requires stable affordable loan terms.

The overall intent of residential zoning is to personally reside in the property and this is why!

1) R zoning limits property usage.
2) Non-owner occupied residential loans pay an interest rate surcharge.
3) Non-owner occupied properties do not qualify for Homestead exemptions and is taxed at a higher rate.
4) Your personal guarantee limits your property acquisitions to your personal income and debt ratio.
5) Today’s residential lenders always lend to cost (LTC) or purchase contract and will require a significant down payment to reduce lender risk.

Commercial zoning by its own definition means properties used for commercial purposes. Properties that are used to generate business sales or profits. There are multiple types of commercial zoning codes, but all share the primary function for business use. Commercial tenants along with the leases they sign can be leveraged to qualify for income based commercial financing. Here lies the primary benefit of commercial investing.

Commercial Financing Features & Benefits

1) The loan is based on the property income not your personal income.
2) The loan does not appear on your credit report and will not limit the number of property acquisitions.
3) Loans can be structured to be non-recourse and may not require a personal guarantee.
4) Cash flowing Commercial properties also qualify for Loan to Valve (LTV) Financing.

LTV Financing is not subject to the purchase price or contract price. It is based solely on the property income or cash flow. This type of financing benefits the savvy commercial investor who knows how to purchase the property at the right price. It becomes possible and very likely that the property acquisition will require little or no down payment.

Now ask yourself if LTV financing really exists, why aren’t the gurus marketing this information? It’s really a simple answer! Most real estate investors get excited talking about buying real estate, but spend little or no effort researching or structuring financing. In short, it is considered boring or to complicated.