Mortgage Banking

Making sense of commercial real estate finance.

Frequently Asked Questions

Posted by Jordan Crouch on October 8, 2007

These are questions that I am asked often.

What is Commercial Real Estate?

Apartments, Retail, Office, Industrial (also included are Hotels, Self Storage, Marinas, etc.)

Who pays expenses?

NNN means tenant reimburses landlord for expenses, Absolute NNN means tenant pays all expenses themselves and Gross/Full Service means landlord pays

What is a 1031 exchange?

Ability to sell a property and immediately purchase another while postponing the taxes on the sale

How to value commercial real estate?

Sales Comparable Approach, Cost Approach and Income Approach

Cap Rate-what is it?

Provides a tool for investors to use for roughly valuing a property based on its income

Who finances commercial real estate?

Banks, Wall Street Conduits, and Life Insurance Companies as well as REITS, Credit Unions, Pension Funds, private companies

Financing basics

Loan to Value (LTV): Loan Amount Divided by Value of Property

Debt Service Coverage Ratio (DSCR): Annual Cash Flow after Expenses Divided by the Mortgage Payment

Cap Rate: Value of Property Divided by Annual Cash Flow after Expenses

How is the interest rate calculated?

The lender will quote a spread over the 10 Year US Treasury Bill; for example, if the lender quoted 1.80% spread when the treasury rate is at 4.60%, the interest rate would be 6.40%

How much do I need to put down?

25% of the purchase price is the usual down payment needed, though certain programs allow for a smaller down payment

I want to own! What do I do next???

Find a broker who specializes in the location and property type you are interested in, if you need recommendations for brokers, just ask Jordan Crouch

With the help of a broker locate a property to purchase

Talk to Jordan Crouch about your financing options


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