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Commercial Real Estate Guide
Ryan Chen
January 20, 2025
Hi there,
Welcome to Loancater’s weekly newsletter. This is approximately a 4-minute read.
In today's newsletter, we’re going to go over the mandate for commercial real estate purchase and refinances
We are going to go over…
What type of financing is available for CRE transactions
Rates from banks, private credit, and institutional lenders
Why you need to plan out your fees pre escrow + leave 10%
The typical closing timeframe for the different type of lenders
Actionable Tips
Commercial Real Estate is a great palace to build your net worth while writing off your taxes and you can get them with a relatively low amount of down payments % wise.
Most lenders will provide 65-75% LTV to prime borrowers and you can close them in as quick as 30 days.
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See previous business owner who were happy to work with Loancater (link)
⭐ Different Type Of Loans
Type of funding product available in the market (link)
What Type Of CRE Financing Transactions Is Out There
From bridge to permanent to construction debt the amount of CRE deals vary deal by deal and lender by lender. Bridge loans are typically 12-18 months and they act as a short term financing that bridges a future permanent debt. People usually get this when they want financing within 1-2 weeks and cannot wait for a longer loan to close. These Your permanent debts are your 30 years fixed options. Finally you have your construction loans which can be separated into a fix & flip loan or a ground up construction financing. Terms on these deals are typically 6-36 months.
Rates from banks, private credit, and institutional lenders
Banks > Institutional lenders > Private credit. That’s your typical hierarchy of rates that you're going to experience when you're going out to borrow funds across all the different lending products and that is because the banks have more capital to deploy and just like McDonalds they have the biggest economies of scale. Rates from Bridge loans are 8-36% APR, Permanent Debt is 7-13%, Construction loans are 8-16%.
Why you need to plan out your fees pre escrow + 10% margin for error
Before you get to the closing table most people would have already done their escrow and did the math with insurance and broker cost etc. What they don’t account for is the appraisal coming in short, or even if they do, they don’t leave room for error. We see deals go to closing and come in way short of what the expected value was and Warren Buffet always leaves 20% room for error so you should prepare extra capital in the event this occurs as well.
The typical closing timeframe for the different type of lenders
When it comes to closing timeframe your thinking of private credit > institutional lenders > banks. The banks will always be the slowest for all the products because of their regulations and lack of direct access to the decision maker (most people only get to deal with a loan officer) whilst at a private credit firm you can access the owner who is issuing you the loan. Typical timeframe from Bridge loans are 7-21 days, Permanent debt is 30-90 days, and construction loans are 30-60 days.
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