Residential / versus / Commercial

* Rentals quoted monthly or weekly / Rentals quoted annually

* Tenants have little interest in maintaining or improving the property / Tenants have a strong vested interest in keeping the property looking good and functional, and even improving it

* Leases are nonexistent or tend to be short / Leases tend to be long

* Tenants phone you for minor problems / Tenants tend to fix minor problems

* Bureaucrats tend to stick their noses in protecting the rights of the tenant / Bureaucrats tend to leave you alone

* Capital required to buy can be minimal / Capital required to buy can be large

* Banks will easily lend up to 90 percent and more of appraisal / Banks will lend only 50 percent to 60 percent of appraisal

* Appraised value when empty is not much less than when tenanted / Appraised value when tenanted may be two or three times the value when empty

* If the property is empty, it is usually easy to find a new tenant / If the property is empty, it may be difficult to find a new tenant

* For a large sum invested, the management overhead can be high / For a large sum invested, the management overhead is usually low

* You deal with people / You deal with contracts

Roughly 20-25% minimum.

Ultimately the financier need security for the loan – that is fundamental to the borrower/ lender system.

As this is a fact in the commercial world, when the developer is preparing his Application for Finance, it naturally includes the end sales value of the development – all the units.

These Application figures include a profit of say 25% minimum. So the application really show the financier all the costs (100%)+ 25% profit, OK?

To support the Finance Application the developer will have included a formal sales valuation supporting the sales prices used in the Application.

This sales valuation (appraisal) will be rather conservative, because Valuers (Appraisers) don’t like being sued by banks if the actual sales prices achieved are lower than the valuer’s estimate.

The financier has to be prepared to accept these figures as fair and reasonable as security for the loan.

If that is the correct appraisal of the deal, it means that the borrower has no equity in their deal – it’s all being done on borrowed money.

That then can only mean that the development/sales market must be very strong + the borrower must have an excellent development record of successful and profitable projects.

In addition the financier may have additional security over other property the developer may own … like his home.

Under this type of deal, you may ask how the developer gets his profit, if he must pay back all the cost + all the profit to the bank.

Well I did say that the sales valuation was conservative … so that keeps the bank happy from a security point of view, but the developer must have known that he would sell the units for higher prices.

In addition he would have added a cost contingency for his own safety. If he did not have to spend the contingency, then that adds to his profit.

The best advice I can give you is to see one of the lenders sales staff and get them to spell out their system. After all a salesman wants new clients and you may become one.

Remember banks and financiers only have one product to sell – MONEY – it’s a commodity, just like a car and a washing machine.

There is no mistery about it – these organisations have sales staff and their job is to bring in new business. Get them to come and see you and present their product.

Then do the same with a number of lenders – record all the data they give you – don’t trust memory – ’cause when you come to make your own application, you won’t have all the info at your finger tips.

Invest in Knowledge First … it is the cheapest of all the decisions you make.

There is an excellent resource written by an australian expert which doesn’t cost an arm or a leg.

http://webpage.colmkille.hop.clickbank.net

Best of luck
christian

Gimme cashflow anyday…..

If someone were to show me two properties and say to me

” Here you go: choose ONLY 1 of these 2 properties. This one here
will give you cash in your pocket each week starting now and that one
will take your money each week but it will be worth more in 5yrs than the other, which will you choose?”

Do I really need to think about this? hehehehe

Let me think… that property will GIVE me money each week in my
pocket starting from when I get it and the other will
TAKE my money each week from when I get it…

Unless I’ve lost my brain I’ll take the property
which will GIVE ME MONEY EACH WEEK…..

That property Gives me money.

The other Takes my money.

One Gives, one takes. One gives, one takes. One gives, one takes.

Gimme money. Do you like giving away your money?

What do I conclude?

Give me the property that pays me NOW, week in & week out.