Many investors have used real estate to build fortunes in California, but financing a real estate opportunity can be challenging. From a banker’s perspective, the aspirations an investor might have for a property mean little compared to the financial nuts and bolts of building the deal.
When considering a loan for a property, a lender will begin by studying the applicant’s credit score. Most people have some sort of blemish on their financial history, such as late payments or a charge off. Two or more late payments, especially on balances that were 90 days overdue, will likely prompt a lender to deny a loan.
An aspiring borrower will also need to show that a property will generate sufficient net operating income to support the enterprise. A lender will expect someone to have enough cash on hand to maintain an office, apartment building or warehouse as low or nonexistent cash reserves will not inspire a lender’s confidence. A hopeful investor might try to gain a loan based on the potential of a property after it is remodeled, but lenders want to base loans on the borrower’s immediate ability to make payments.
A person experiencing barriers regarding financing might overcome challenges with backing from a guarantor with strong financials, a lengthy history of successful business operation or a relationship with the lender. Someone working toward financing a commercial property could consult a lawyer about developing the agreements between investors and lenders. A lawyer could assist during negotiations with the involved parties and provide advice to the person to prevent unexpected liabilities. A lawyer could also review disclosures about the property to help the buyer perform due diligence and gain confidence about the value of the real estate.