Commercial Financing Mastery 101

Financing Possibilities

Commercial Financing Mastery 101

• Round of Introduction, what is your expectation?

• What do you know about commercial financing?

• Why do mortgage brokers avoid it?

• Carrot & the stick – Why I do it

What Do You Think Commercial Financing Is?

Anything that does not qualify in residential financing!

Business Financing

Commercial Property

MUR , Non Profit

Agri/Farms

• Unsecured Business Financing

• Commercial Property Financing– Retail, Industrial, Office, Hospitality

• MUR, Apartment, SRO, Non Profit

• Farms / Agricultural

• Other: hotels, pubs, recreational, trailer park, storage facility

• Large Equipment & Vehicle

• Non-Branded Business

• Farm/Agricultural, Land

• Pub/Bars, Recreational & Other

• Developments (multi-properties)

Has Potential (20%)

1. Office, Retail, Industrial, Hospitality

2. Residential, Construction, Mezz

3. Multi-unit rentals, Student Housing

4. Co-op, Non Profit, Hotels

5. Branded business (Franchise)

Effective Use of Time (80%)

Up to *75% Loan to Value

Appraisal - in-depth (cost/income, time sensitive, expensive)

Debt servicing calculations

Income: property & business –terms/vacancy

Credit rating – personal/company

Business plan/experience

Up to 95% Loan to Value

Appraisal not always required

Debt servicing calculations

Income: personal employment & miscellaneous, suite rental

Credit rating - personal

Character of applicant

* MUR CMHC Financing up to 85% LTV

• What opportunities, type of commercial business to target?

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• Who do you know that have a business?

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Make a List of Potential Opportunities

Not advertised – based on risk & property “A” business is 1%-2% higher (CMHC lower) Amortizations up to 25 years (Avg. 20) Lender fee of 0.25 to 2% (Avg. 0.50) Annual and renewal fees (ie. $250-500)

Application fee + broker fee Legal fees – higher than residential Appraisal fees – Cost 10+ times more than

residential (take 2-3 weeks) Environmental assessment (Stage 1-3) Survey may be requiredProperty Transfer Tax (No exemption)

Much longer process (2-12+ months) Reports can take up to 6-8 weeks Extensive documents required Longer time required for analysis 4-6 weeks for realtor subject removals Property Transfer Tax (No exemption)

Commercial qualifications are “truly” common sense CMHC Multi-Unit Financing better than residential rates (1.77% -

5 years/ 2.43 – 10 years term) Flexible down payment source and no 30/90 days requirement

for deposit Residential tenancy law vs business (hello bailiff!)

• Business owner complaining about increasing lease yearly

• Investor worried about grow-op tenants / druglab

• Not interested in bidding wars

• Prefers stability, conservative investor mentality

• Investor that don’t want to manage any more deadbeat tenants

• Investor getting close to retirement

• Having hard time qualifying on anymore properties

Refer to Previous List:

Who Do You Know That Would Be Better Off Investing in Commercial Properties?

Broker reviews file, prepares a detailed executive summary for potential lender Research appropriate lenders Lender interested will provide “letter of

discussion” Broker negotiate rates, fees and terms Collect non-refundable commitment feeArranges appraisal, lawyer for conveyance Legal work completion 1-2 weeks after

instructed to lawyers

• After $960K Combined:

• 1st Mortgage $ 4,972

• Tax $1200/mo

• Total $6,172

• Gross income $12,375/mo

• Gross net: $6,203/mo

• Jan 2012 - $9,600 fee

Before $960K Mortgages:

• 1st Mrtg $5,760 /mo

• 2nd Mrtg $1,625/mo

• Tax $1200/mo

• Total $8,585

• Gross income $12,375/mo

• Gross net: $3,790/mo

Same Lender

Negotiated Proposal:

• 100% purchase financing –inter-alia 2 properties

• 65% cost to build financing

• $2.6M (1.6M + 1M)

• 2 months to complete

• $26K broker fee

Applicant:

• $18K & $22K net income

• Developers - 5 previous homes

• Own 2 with ~50% Equity

• 1 Home 2 months to complete

• $1.6M Purchase, subdivide + build

Negotiated Proposal:

• $340K pay off all loans and all credit cards (maxed)

• $100K additional biz LOC

• Referring broker is paid $2720 instead of $850 (head office)

• Referring broker earns 3X more

Applicant:

• RBC loan on warehouse

• Calling the loan – late payment

• Plumbing business

• Lost money 3 years in a row

• Signed near $1M projects need additional $100K+ on top

3.10% - 3 yrs / 3.35% – 5 yrs

Loan Request: $340K plus additional $100-200KThese clients are in their 2nd full year of business in their new company (although they have been running their parent's business for the past 9+ years).Bill Smith & Jane Doe are 30 year veteran plumbers. They currently operate their business out of the building they own (at 12345 Main St) which is worth approximately $450,000. Bill & Jane worked for the family's plumbing business ABC Enterprises which was started by their parents which has been replaced by XYZ Group (2013). ABC Enterprises has now closed their business in 2014 and referred all their clients to Paul & Peter's new company, XYZ Group Ltd.

Purpose of loan:Part 1 - Payout RBC mortgage $200K + 100K HELOC. Also consolidate business credit card debts of approx $40K.Part 2 - Request of additional $100-200K funds for mezzanine and business expansion. Funds would be used to build/expand office in their building. The additional fundswill also allow them to bid on more projects as well as hiring more trade personnel. This will increase their capacity to successfully bid on more projects.

Clients: Bill Smith beacon: 686 / Jane Doe beacon: 721Both applicants have good credit history. The few late payments are due to the trade that they're in, using up their credit cards and paying them off but forget to do it now and then. Although, they have never made any missed payments on their mortgages.Bill Smith has $55K+ liquid investments. Jane Doe has over $115K in liquid investments.

Financials: XYZ Group's first year 2013 had $132K in revenue in the 4 short months (from Sept - Dec 31, 2013). XYZ Group has over $680K in current projects and over $1.8M in the pipeline.

Current projects:- Warehouse in langley, $130,000 / Duplex in North Vancouver, $30,000 / Lane house in North Vancouver, $12,000 / 38 units in East Vancouver, $511,000Projects in pipeline:- 5 more lane homes Surrey/Langley, $1.8M development projects currently under negotiations with project managers. (see attachment)

Challenge:XYZ Group Ltd was incorporated in August 2013. They have actively done business in the past 16 months under this company. 2014 financials are not completed yet. Interim financials have been requested. We can discuss further base on those financials. Clients have told me that their 2015 projections are very positive.

I believe the part 1 of the financing should be inline with your lending guidelines, part 2 should be possible if you normalized the 2014 financials and the strength of the business moving forward. The interim financials plus new projects being added would support at least $100K+

Financing Comparison Broker Bank

Comprehensive interview X ~

Expert advice (SP/P/Ltd) X ~

Aggressive pricing X

Consulting and business planning X

Research Service X X

Market reports X X

Access expert network X ~

Compare costs of your service with one or more competitors.

Point out financial benefits to the customer and your value.

Continue to add value after the loan – an account mentality.

Reinvest in client appreciation = unlimited referrals

• Clients’ Point of View: limited choices & public awareness no rate advertisement

• Limited Representation by Brokers: DLC Commercial, MAC Commercial, VERICO Commercial etc.

• 25 BPS Referral fee only• No training system to teach you

Now is the time:• to identify your target market / niche• to understand how to best brand and position yourself• to identify competitors and leverage their success

Consider ongoing support to help you respond to changes in your market.

Find a mentor Co-broker with commercial mortgage broker Start small and simple Be prepared to do more work Be prepared to be paid a lot more!

MLab

Intranet

MeetupGroups

Social Media Experts

Hippo Stream

Client Tracking

Leverage Ideas

Sharing Content

Your Brand

Your Market

Your Events

Your Expertise

• Change Clients’ Point of View to: Unlimited choices & promote public awareness Stay current on market rates/pricing

• Limited Representation by Brokers: DLC, MAC, VERICO, Invis: independent agents to 50+% fully competent!

• Charge 150-200 BPS yourself!• Become the Superstar trainer for your office!

Now is the time:• to expose yourself to your target market / niche• to go brand yourself and position yourself• to befriend competitors and leverage them to help each other succeed!

Enroll for ongoing support to help you stay focus, be accountable and stay on top of your game!

“You’re either growing or dying”, choose to grow

Key Benefits of Continuing Mentorship: Investment in your training is an investment in

your future success! Know yourself better Know your customer better Know your competition better Timing is everything, now is the perfect time G.O.Y.A.

Commercial Financing Superstar

This workshop will cover major components of the Commercial Financing Mastery Level 2 workshop plus the following advanced training:

• Contrarian lead generation strategies

• Niche marketing strategies

• Creating ambassadors & promo partners

• Mastering the art of structuring deals

• Orchestrating your brand

• Accountability support group

Recommended for brokers with 2+ years of experience who is looking for additional income streams.

Mentorship enrollment application

Commitment – 3 or 6 months

Cost What is ROI? What is the cost of not

doing anything?

6 Months 100% Satisfaction Guarantee

Contact Information

Sua Truong(604) 726-7878

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