Archive for July, 2009
Jul
31
re: Capital gains tax on sale of commercial property?
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I own a Tenant-in-Common (TIC) interest in a com’l property.. The property is currently in the process of being sold after 5 years. My question is: We have paid down the mortgage over the 5 years about 60,000 with funds collected as TAXABLE rent. Now with the sale, I will recoup those funds. My CPA insists that this portion of the proceeds will be taxable… Being I’ve already paid tax on these funds, I don’t understand why I can’t get those fund back tax free and have to use them in a 1031 exchange (ps… I fully understand that the mortgage is a balance sheet item, but I still think I should get those $$ back tax free. Please HELP… thanks, Herb
Passive Income
Jul
31
Understanding Usda B & I Commercial Mortgage Loan Programs
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B & I is in favor of business and industry. Business and industry guaranteed loans, as well as cooperation programs developed with support from the USDA, have contributed to a multitude of communities the resources to develop a wide range of needs and services. B & I guaranteed loans help people develop and finance companies, improve their communities, develop industries and improve the environment and the economy in rural communities.
Business and industry guaranteed loans may include but are not limited to:
Panel – Intermediary Relending Program
REEEP – Renewable Energy and Energy Efficiency Program
RBEG – rural enterprise grants
REDLG – Rural Economic Development loans and grants
9006 Grant – Guaranteed loans for renewable energy programs
Organizations that can borrow and apply for such loans may be corporations, partnerships, as well as the profit or nonprofit organizations or the construction or development in Federal or State Indian reservation lands. People can also apply for loans through the USDA B & I loan programs to meet the individual needs and goals.
There are some stipulations that people should continue to apply for a USDA B & I loan guarantee. These include, but once again, are not limited to:
The borrower must be able to provide employment in the future
The borrower must demonstrate that he or she will be to improve the local economy or environmental concerns
The borrower must demonstrate that he or she will support conservation
The borrower should promote development of renewable energy sources
People also must be U.S. citizens or those who have applied for permanent residency. Funds can be used to convert the companies or carry out the expansion and repair of existing buildings. They can also be used to purchase land, buildings, and easements or right of the media. The commercial mortgage loans can also be used to purchase equipment, machinery and other supplies, in addition to accessories, furniture and working capital.
Those interested in a USDA B & I loan program should be aware that your commercial mortgage loan can not exceed $ 5000000 with Griffin Capital. The reimbursement must be made within 30 years. Rates are charged according to risk and the type of commercial mortgage loan. Borrowers should also be aware that the security is necessary and should be of sufficient value to protect Griffin Capital.
Funding for borrowers that under a USDA B & I loan program also must live in areas with populations fewer than 50,000. However, if certain criteria are met, there is no restriction on the size of the company is developing. Closing costs and other expenses are also eligible to be included in the loan amounts.
The USDA and its motto of being committed to the future of rural communities offering a wide range of business programs, and opportunities for rural development and partnerships.
For more information or to apply for a loan visit http://www.pro-bargainhunter.com
Repossession
Jul
31
Avoid Critical Commercial Mortgage Mistakes
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Although it will not be easy, avoiding key commercial real estate financing mistakes is likely to eliminate critical commercial mortgage problems that often have disastrous consequences. The combined use of advanced investment strategies and proper precautions is likely to produce improved business finance results.
While we will not be addressing all possible commercial mortgage mistakes in this article, we will include several of the most severe issues to anticipate. In our experience, the potential difficulties involving factors discussed below are more serious and common than most commercial borrowers are likely to expect.
Inexperienced Business Finance Brokers and Lenders -
Commercial mortgage financing has recently become more popular with brokers and lenders that previously focused on residential real estate financing. More and more lenders and brokers are looking for alternative revenue sources due to residential financing difficulties. Many of them are devoting increased attention to business finance and investment loan services.
While this shift might eventually result in a positive outcome for commercial borrowers, the immediate impact is a sudden influx of inexperienced residential mortgage brokers and lenders attempting to provide investment advice for business financing and commercial real estate financing. For most business borrowers, the use of inexperienced business finance advisors will be a mistake of potentially serious proportions. As we have written about extensively, there are approximately 25 major differences between residential financing and commercial financing, and most residential financing experts are simply unprepared for business loan complexities.
SBA Loan Refinancing for a Commercial Mortgage -
Because it is more difficult to refinance an SBA loan or conventional commercial mortgage than many borrowers realize, it is advisable to thoroughly review refinancing options before completing the initial business financing if at all possible. The biggest potential business finance mistake involving an effort to refinance is likely to be an assumption that refinancing can be easily accomplished and whenever the commercial borrower chooses.
In reality most business and commercial mortgage refinancing situations will require less attractive terms than the initial business financing. Since acquisition financing includes terms not possible upon refinancing, this observation is particularly relevant for SBA loan refinancing. Another potentially critical mistake is to overlook short-term business financing options which will eliminate refinancing problems.
A major obstacle to refinancing a commercial mortgage, whether it involves an SBA loan or not, will be prepayment penalties and other financial restrictions that effectively prevent refinancing for several years. Short term possibilities should be considered if a borrower expects that commercial loan refinancing in the first three years of the business financing is likely.
Specialized Commercial Real Estate Investment Property Issues -
With more specialized commercial properties and investments, the potential for serious mistakes increases substantially because of the advanced business financing complexities. Commercial mortgage loan choices are also likely to be more limited because there are fewer lenders which will provide this kind of specialized commercial real estate financing.
Businesses involving apartments, offices and retail space are generally considered to be less specialized from a commercial lending perspective. This is due to the likelihood that potential users and renters of such properties are more interchangeable than for a business investment involving specialized uses such as a funeral home, golf course and gas station.
The business finance costs for more specialized properties are likely to be more variable and unpredictable than for office buildings, retail stores and apartments. For example, environmental and appraisal requirements for properties such as funeral homes and gas stations will be extensive and time consuming.
Solutions and Strategies for Avoiding Business Financing Mistakes -
The potential business finance mistakes described above can be overcome successfully. It is recommended that business borrowers find sources offering helpful strategies and background information which will provide a comprehensive comfort level for complicated commercial real estate loan factors. Business borrowers should thoroughly discuss business financing options with a business loan expert before refinancing or buying a commercial property or business investment.
Passive Income
Jul
31
Commercial Mortgage Lenders – Overview
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There are essentially four sources of capital from commercial mortgage lenders. Basically all commercial mortgages come from theses sources, which are commercial private money lenders, conduit or CMBS lenders, SBA lenders and portfolio bank/lenders. Though these distinctions can be somewhat blurred, for example some national banks pool and sell their loans like CMBS lenders, these four categories are what make up the commercial mortgage market. Let’s take a brief look at each individually.
Commercial Mortgage Lenders - Private Money
This category is comprised of individuals to private hedge funds that loan their own money secured by commercial real estate. These sources also go under the names bridge loans and or commercial hard money. There terms are usually short at 12 -24 month, with interest only payments with rates and fees on the high side. Borrowers should expect to shell out 3 -6% on the front with rates between 12% – 16%. These programs are often used by individuals that have short time frames and or have been turned down by banks.
Commercial Mortgage Lenders – Conduit or CMBS Lenders
CMBS or Commercial Mortgage Backed Securities type loans have been getting a lot of press lately as this category has been dragged down by the residential subprime mess. Basically this is the Wall Street side of the business where commercial loans are originated and then pooled together in batches often over $100 million and securitized into bonds. These bonds are than sold to large investment companies such as insurance firms or pension funds. The main benefit for the banks and lenders is the liquidity created by selling the loans off rather than holding onto them. By freeing up their capital, they are in the position to reinvest into other commercial mortgages. The main benefit for borrowers with these types of loans are many, such as long term fixed rates, longer amortization periods and competitive rates.
SBA Lenders
Lenders and banks that are set up with the SBA boast a few strong advantages over traditional bank loans. I.e. 90% financing and longer fixed term rates are 2 examples. It’s important to note that the SBA does not lend its own money but guarantees banks, in case of borrower default, that the bank will receive all or a portion of their money back. Think of it as an insurance program for the bank. The funding bank or lender are often more aggressive with their terms because of these guarantees. Unfortunately SBA loans are only for businesses that occupy their building and not available for investors.
Commercial Mortgage Lenders – Portfolio
Portfolio banks or lenders essentially loan their own money which they often receive from deposits. This is the most traditional type of banking and was the norm in the past. These banks that still operate in this fashion are often smaller local banks that often only cover one or two states. They do have some flexibility with their underwriting as they are making much of the decisions to fund on their own. However most portfolio lenders are conservative in nature. It’s interesting to note that portfolio lenders are experiencing good growth (relative to the whole banking industry) right now as many are in strong positions as they are not dependant on Wall Street for their capital.
Rent Back
Jul
31
can a landlord change his mind on the set terms of a commercial lease that he signed?
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I Have A Lease Signed For A Stated Time Period Its For 2 -3 Yr Terms At The Renewal After The First Portion Of The Lease It States That The Leasee Has The Option To Renew With A Written Request To Renew. Can The Landlord At That Point Decide To Change His Mind On The Set Terms And Raise The Rent&Switch The Time Period From 3 More Years To A Month To Month? The Lease Has Been Signed By Both Parties! It Clearly States That It Is For 2-3 Year Terms And That The Renewal Of The Lease (The 2nd Half) Will Be The Same As The First. Can He Change His Mind After He Has Already Agreed To These Terms And Signed?
Quick Property Sale
Jul
31
Commercial Mortgage: Your Questions Answered
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Understanding commercial mortgages is important if you plan on being a successful investor of wealth.
What is a commercial mortgage?
A commercial mortgage is a business credit using real estate (i.e. commercial building or other industrial property) as collateral to ensure settlement within an agreed period of time. This is a type of mortgage employed usually by business entities and not private individuals. By business entities, we refer to incorporated businesses, partnerships or limited companies.
Why do businesses avail of commercial mortgages?
The most common reasons for applying for a commercial mortgage are:
- Increase or expansion of current facilities
- Purchase or acquisition of land or industrial assets
- Commercial or residential investment
- Development of properties
Who qualifies for commercial mortgages?
There are several criteria to qualify for a commercial mortgage.
1. “Debt service coverage ratio” – this refers to the proportion of availability of cash to the needed loan settlements. Although many lenders may accommodate some applicants with some unfavorable credit records, most will expect a personal investment on the part of the borrower into the acquisition.
2. Feasibility of the business plan and current business standing – the lenders will want to see where the business is headed to and within what timelines these goals are expected to be achieved.
3. Type of business and type of land – risk factors that affect the business in relation to the nature of the industry and intended use of the premise is likewise considered
What are the general terms for commercial mortgages?
Most U.S. commercial mortgages call for monthly payments that have been scaled small enough to be able to settle the loan within a 20 or 30 year credit period span, with a total payoff within a lesser period of time. In other words, there are two basic elements to the commercial mortgage term. First is the period of time permitted before the total payoff? This can range from 5 to 30 years and can also be referred to as the ‘term’. The second is the amortization. If the term of the mortgage is 10 years, with a 30-year amortization timetable, the commercial mortgage will be referred to as a 10/30.
What about interest rates?
One thing to remember is that interest rates for commercial mortgages are definitely higher compared to interest rates in residential mortgages.
The basic type of commercial mortgage is the ‘fixed rate commercial mortgage’. As the name implies, it facilitates a fixed interest rate and payment for a full term loan. It is, shall we say, friendlier to the business budget as its rates do not sway along with fluctuating factors in the business market. This type of commercial mortgage makes planning easier.
Another type of commercial mortgage is the adjustable commercial mortgage funding. In this type, interest rates fluctuate depending in relation to an index that is chosen at the time of the mortgage issuance. The advantage of and ARM (Adjustable Rate Mortgage) is that probability for getting a higher loan amount and the potential savings compared to a fixed rate in the long run. With the ARM, interest rates are changed periodically. This gives the borrower a chance to avail of lower interest rates if the rates go down.
Sell House Quick
Jul
30
What are my rights as a tennant? Commercial bldg?
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I have been paying my wifes grandpa a well below market (his choice) rent for over 6 yrs. He just passed and now the survivors of the property (his kids) want to raise my rent by 500%… Myself and the Gpa never had a written lease agreement, he just told me what to pay each month and I sent him a check. Am I entiltled to 30 day written notice, and the 30 day eviction notice.. What are my legal rights. This is getting messy, and I hate to have to do this with my wifes family, but my company has budgeted $ xxx only for the 2007 year, and cannot swing the HUGE increase of rent.
HELP PLEASE.
Thanks
PS—- If my father in law owns half of the property, can he file for a partition of property, (can she refuse, and force sale).
I would like to possibly buy this property, but they refuse to get a certified commercial appraiser- Which I beleive is neccessary, instead the othe 50%owner has a real estate agent bragging about how much rent she could get for this place.$$$$ This is in Michigan
Quick House Sale
Jul
29
is commercial mortgage interest deductible?
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I do my own tax, if commercial mortgage interest is deductible, where should I appy to on 1040.thanks
Sell House Quick
Jul
29
What are good web sites to advertise my commercial building on; “for lease by owner.”?
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I have a 6,000 sq. ft building with parking, for lease in old town pasadena calif. I want to advertise on the internet as “BUILDING FOR LEASE BY OWNER; WILL PARTICIPATE WITH BROKERS.”
I do not want a listing broker.
Repossession
Jul
29
Real Estate Mfs and Reits Come Cheap
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They say bureaucracy in India can be slower than the most patient snail. So, more than seven years after the proposal was first mooted, the Securities and Exchange Board of India (Sebi) came out with its draft guidelines for real estate mutual funds (MFs). This move has brought much joy and relief to the MF industry.
Now, the industry is out to convince domestic investors that the move could not have come at a more opportune time. In these volatile times, real estate acts as a good diversification option due to its low correlation with equity and bonds. Besides, retail investors can now invest in actual real estate projects with amounts as low as a few thousand rupees.
“Sebi’s move to launch realty MFs will not only foster diversification in the MF industry, but will also promote wider participation in the real estate sector,” says Vineet K Vohra, MD & CEO, ING Investment Management, a fund house that helps manage around $200 billion in various real estate projects around the globe.
Mr Vohra says the move will help bring the Indian market place closer to global norms. As for delivering returns, sample this… ING’s Global Real Estate Fund, which invests in shares of international real estate companies, emerged unscathed in the recent stock market turbulence.
The fund not only took the crash in its stride, but also delivered positive returns over the same time period. If you had invested Rs 10,000 separately in the BSE Sensex, BSE Realty index and ING Global Real Estate Fund on January 10, ’08, your investment would be worth Rs 7,900, Rs 5,500 and Rs 10,800, respectively , as on April 22, ’08. Sebi has given approval to two kinds of real estate funds. The first category is of real estate MFs, which will invest in real estate projects and mortgage-backed securities.
These will be closed-ended funds, listed on the exchanges. As their net asset values (NAVs) will be declared daily, investors will have the option to exit any day. So, you can now say goodbye to the old tradition of illiquidity in real estate investments. Real estate investment trusts (REITs, in short) constitute the second category of real estate funds.
These products are very popular abroad. The most common version of this class of funds allows an investor to earn fixed income like returns through rents of commercial properties . Most REITs are listed on the exchanges and have tax incentives for investors.
Put simply, REITs work like fixed income instruments (rents as coupons), while realty MFs will seek capital appreciation (like a stock price going up) by investing in properties. For years, real estate was synonymous with lack of transparency in transactions and absence of an index, making it difficult to track prices.
Various fund officials like ING’s Mr Vohra hope that the introduction of REITs in India will change all that. They are betting on such products ushering in greater liquidity to this asset class, as well as freeing up developer capital for further investment, changing the dynamics of the sector as well.
With the current real estate boom and no signs of any fall in demand for homes or offices, this may be the best time for investors to own a share of the lucrative realty sector. Real estate MFs and REITs offer the cheapest and most convenient way to do so. However, let’s hope that smoother legislative framework and a clear taxation policy will be put in place for these products, making them investor-friendly .
Quick House Sale
