When you're looking to buy or sell a building with more than four units, a commercial mortgage lender will play a critical role in the success of your transaction. And when a deal falls apart between contract and closing, the loan officer is usually to blame, right?

Wrong, say the lenders: Many times, it's lack of borrower knowledge that really kills deals.

I talked to multifamily loan officers Anthony Hawthorne at Community Investment Corporation (CIC) and James McDonald at New Century Bank. Both agree: Applicants without a well thought out investment strategy or sufficient cash make lenders skittish.

The standard down payment on commercial apartment buildings is 20%. Still, says Hawthorne, "…We get people who want to buy a sixteen unit building with no money down, and that's just not likely to happen.”

As far as investment strategy is concerned, he says, "Borrowers don't need to know everything, but we really do want them to have some idea of what they're doing.” And that means understanding a building's cash flow and having an exit strategy.

As a non-profit focused on revitalizing neighborhoods and maintaining affordable housing in gentrifying areas, CIC offers a full range of property management classes to help borrowers learn. The organization provides acquisition and rehab funding, and targets a number of areas including Rogers Park and several neighborhoods on the south and west sides of Chicago.

According to Hawthorne, CIC often uses creative tactics to make deals work, sometimes even giving interest rate subsidies and grant money. But borrowers should know why the property they want to buy is a good investment as-is, or have a solid, realistic plan for turning it into one.

James McDonald at New Centur

y Bank agrees. "Ideally, we like to see something along the lines of a business plan for the property.”

McDonald also pointed out that cash reserves are becoming more important. The bank has begun placing more emphasis on a borrower's ability to pay for the costly, unexpected problems that sometimes arise after closing.

All of this underscores the importance of thinking through your investment strategy before making an offer on a property. If you're not certain about how to put it all together, get qualified help.

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