Wealth Opportunities in Commercial Real Estate: Management, Financing, and Marketing of Investment Properties

The Pitfalls of Mortgage Lending

Applying for and processing a commercial loan is somewhat analogous to playing chess. Your success ratio will be enhanced to the extent you anticipate issues and address them prior to them becoming problematical. I refer to this process as a proactive approach to mortgage lending, or avoiding the pitfalls of mortgage lending.

Start from the Conclusion and Work Backward

If your desire is to obtain the largest loan possible you might look at the lending process as a chess game or a puzzle in which you know your goal and now work backward to accomplish it. A central factor in establishing the loan amount is the appraised value as well as the appraiser's underlying income and expense model, which must be constructed to reach the conclusion of fair market value. If you fail at the outset to understand where the appraiser will come in with value, you may be unpleasantly surprised with the end results.

Make an attempt to build a relationship with several competent and knowledgeable appraisers. Discuss the real estate project with these allies. Understand how they would come to a value conclusion. Would they count month-to-month tenancies? How would they value excess vacant land? If the rent roll reflects large variations in rent per square foot, how would they approach this factor? What do they perceive to be the vacancy factor in the subject area? What do they believe to be the current market rent per square foot? What is their experience as to what this ...