Would appreciate if I got your feedback on this issue. I’ve been looking into a commercial property costing $2.25m. Personally I can only provide equity of up to $100K and a bank guarantee of up to 5% if I default on the payment.
Is this enough security as this case the asset is the security and the lender gets to hold its mortgage lease also?
Will having stable clientele like a bank, life insurance company and private healthcare Insurer(BUPA) as the three major tenants on a long lease play in my favor. Two of these tenants are on a 10yr newly signed lease and the other on a 6yr lease.
My main problem is the local banks here which would have been ideal to deal with aren’t offering any good rates. Granted the local mortgage market here is in its infancy, it still doesn’t justify for them to offer predatory rates, exceeding more than 15% for a fixed rate mortgage!!!
I decided to shop for lending from foreign institutions, especially those focused on emerging markets. I approached one real estate Africa focused fund – (Actis of CDC Capital Partner's Africa Real Estate Fund) and it still hasn’t gotten back to me. What went wrong?
Now let me tell you’ll why I think this is a profitable venture. I could be wrong though and hopefully you guys will guide me as to where to smoothen things out.
As of now, the building generates $300K net annually after deducting all itemized costs. This can further be increased to 330k with additional services provided.
Ideally I’m looking for a fixed rate mortgage (FRM) with an interest rate of 6-7% over a 20yrs amortization. I do know for a fact this is attainable in States, but might not be available to foreign investments, at least according to my research. My research is based on difference in lending/trading currency, legislations and higher risk involved going offshore. Maybe I’m limiting myself here and there are still available institutions I should be looking into. Any takers?
In anyway if this were to happen, I will keep the property and should be able to clear it slowly and have a substantial monthly net returns after I deduct all payments & transactions.(30% return on my initial investment in my first year and Initial Rate Return(IRR) of 13.3% for lender).
Second way would be to go with an adjustable rate mortgage (ARM) with a 5 year fixed cap rate of 6-6.5%. ARM is definitely the best way to screw over any lease holder enticing him with an initial lower rate and possibly exploding higher rates most won’t be able to pay past the grace period. Let’s hope no Somali fell for the sinker line and for those who bucked the "herd-mentality" without having a decent form of income I can only wish them well. Owning a home is not for everyone.
Coming back to my query, given my scenario of it being an offshore international loan, I’m assuming change in rates will only be determined by change of current interest rate set by fed reserve.
Am I too simplistic to rely mainly on fundamental factors like currency rate and there are other factors involved too? Anyone ever dealt with such a scenario?
Assuming fundamentals only come into play here would it wrong to assume the fed reserve will most likely keep the interest rate same as there isn’t immediate inflation threat and even if it were to change it wouldn’t be substantial and not more than a 0.25% change, a case were it to happen, I’m still able to pay.
Also with a 6.5 ARM, I would still be able to sell this property for a profit. I’m basing my argument on the location of this property, a prime commercial hub near major malls & financial district. Hopefully after the 5 year cap, could even have capital appreciation which will hopefully give me enough leverage to bail out if things weren’t to go my way.
Do lenders allow an exit point, obviously at a premium rate if the mortgage holder wanted out? How to maneuver such a case? An example would be helpful.
What could I be doing wrong that the first financial lender never got back to me on my proposal? Could this be cause my returns aren’t attainable and I’m a day dreamer.
Won’t the handling banker earn a commission if the deal is closed? Will it be worth enticing him with a higher commission to close or even coaching me on how to improve my proposal? Again is it advisable? Is it legal or It could land me in jail?
Is it worth shelling out $5K and consulting with an actuary and a financial analyst to work with me on the business plan part? Perhaps they are in a better position to negotiate better terms, payment period, grace time and even teaser rate period incentive. Or would I be wasting my time with them?
Anyone ever dealt with an actuarial planner or even a cfa?
Am I wasting my time as it is and I’m better off cutting my losses and investing the minimal equity I have wisely. Will playing in the big boy’s league only make me miserable and greedy?
I could even end up loosing everything-right. Laakiin isn’t this how most major conglomerates started.
How to improve my chances? Ilataliya folks. Much appreciated.
Thanks.
