Wednesday, September 21, 2011
In our blog last week, we revealed that Mike will be taking the Certified Commercial Investment Member (CCIM) exam.
We thought it might be helpful to share with you the requirement s to earn the coveted CCIM designation.
In short, candidates are required to:
After applying for membership, the candidate will need to complete the required coursework, which includes 184 hours; each required course is 40 hours (each elective is eight hours in length) and negotiation training hours of classroom instruction including: four courses in commercial real estate practice and investment, an online ethics course, eight hours of negotiations training, and two elective courses.
Another requirement is the submission of a portfolio of qualifying experience, which demonstrates the depth of the candidates’ commercial real estate experience.
Candidates must document the following:
Finally, a candidate will need to pass the comprehensive “final exam,” which will test his or her knowledge of the CCIM skills learned in the required courses.
Mike will take his exam in October, which will enable him to join the 9,000 elite members who have already earned the CCIM designation.
Click here for more information about the CCIM designation requirements.
Share with us what goals you are working toward?
Monday, February 28, 2011
5 Cs of Credit: Your Key to a Commercial Mortgage Approval
Just like you have a checklist for real estate that fits your investing or business needs, a bank has a checklist for loan analysis. Simply put, it’s known as the 5 Cs of credit: character, capacity, capital, collateral and conditions. These items are what a bank looks at in making an approval decision. When one of the Cs is lacking, like the overall conditions of the real estate market and economy, it makes the importance of the other Cs that much greater.
Your capacity to repay the loan depends on the property’s cash flow – either your business income or the rent received from tenants. You should aim for a 1.20x debt coverage ratio, meaning that for every $1 in loan payments, your property or business needs to generate $1.20 in cash flow.
A bank will also look at the ability to resell the property at an amount that at least covers the loan. The value of this collateral is determined primarily by comparable sales in the market or the income stream of the property. For income-producing properties, value can be estimated based on a 10% cap rate.
To help protect against declines in value and limit a bank’s risk, as a borrower you are required to put capital into the purchase of real estate. For most types of properties that means a 20% down payment.
Take a look at this example that brings together the 5 Cs: A three-unit office property is listed for sale at $200,000. The total leases (for all three units) provide rental income of $2,750 per month.
| Rent Income |
|
|
| Gross Annual Rent Income |
$33,000 |
|
| Vacancy Allowance (10%) |
($3,300) |
|
| Net Rent Income |
|
$29,700 |
|
|
|
|
| Operating Expenses |
|
|
| Taxes |
$2,500 |
|
| Insurance |
$1,250 |
|
| Utilities |
$2,500 |
|
| Repairs (5%) |
$1,650 |
|
| Management Fee (5%) |
$1,650 |
|
| Total Operating Expenses |
|
$9,550 |
|
|
|
|
| Net Operating Income (NOI) |
|
$20,150 |
|
divided by 10% cap rate |
|
|
| Collateral Value |
|
$201,500 |
|
|
|
|
| Capital (20% down payment) |
|
$40,000 |
|
|
|
|
| Payments on $160,000
(sale price minus Capital; 15-year loan) |
|
$16,75 |
The right combination of capacity (1.20x debt coverage ratio), collateral (a value of $201,500 that is similar to the $200,000 purchase price) and capital (20% down) make a solid deal for an investor and a bank. Don’t forget to add your character to the equation – your credit history can make or break the deal.
If you have any questions, feel free to contact Amy Richmond, vice president and commercial loan manager for Metro Bank, at 717-412-6641. Metro Bank works side-by-side with Omni Realty Group.
