Before I started in the commercial real estate industry with 3CRE | SVN, I was in the residential Mortgage industry for over four years. Much has changed about how financing is done since the housing industry bubble burst in 2008. The good news is that lending is on the rise again and money is being loaned out at all-time low rates.
Prior to 2007 it was easy getting a loan whether it was for residential or commercial. If you had a property and a signature you had a loan. All properties were always going to appreciate and income was going to offset the note.
This quickly changed as soon as the bubble burst and it killed the lending process. No banks would lend because properties values were lower than what was owed. Because of this a lot of owners no longer felt the need to pay their mortgage for a property that they were “upside down” in. As a result, borrower’s credit was also on the downturn. Lenders became reluctant to lend because people were not in good standing with the bank and they were dealing with billions of dollars in losses from properties that had been given back. Fannie Mae and Freddie Mac were at the point of filing bankruptcy.
Guidelines got extremely tight and banks were no longer lending. This has changed though in the past 3 or so years. The government forced the fed to lower rates which made it very attractive to prospective buyers. Also a lot of the “underwater” or distressed properties have been flushed out of the system. Banks are lending again at all-time low interest rates. You can now get an interest rate that is at or a little above the rate of inflation. The federal government made it a goal to get the lending process started because the housing (whether residential or multi-family) is the driver to making our economy strong again.
If you are in the market now to purchase a property, the time is now. Historically, you will never see rates like this again and the cost of borrowing money is so cheap that it allows you to maintain a positive cash flow on commercial assets. Rates currently are in the low to high 4’s. We hope it may never get to the point of just having a property and a signature again but there is a light at the end of the tunnel with guidelines loosening and rates being low which will allow you to purchase a property. Contact your local banks or credit unions to see what you qualify for.
– Tryfon Christoforou