Traditional loans are often difficult to obtain. Banks and other lenders typically require steady income, proven track records and assets to be used as collateral before approving any loans. Unfortunately, the commercial real estate industry may experience its up and downs, providing both success and failure for investors. Furthermore, commercial real estate investors are often self-employed and, therefore, are usually not looked at favorably by traditional lenders. Stated income loans, on the other hand, may be a viable option for CRE investors who need loans for their next property.
Before lending, most traditional lenders prefer to see a steady paycheck with the same amount each pay period before they are confident in lending to that person. Real estate investors, however, usually don’t get that weekly income. Instead, they usually earn their living by buying and selling property and leasing out units. How well they do and how much money they earn often depends on the general state of the economy. If the economy is thriving and unemployment rates are down, consumers have the money to shop, allowing businesses to open and thrive. New companies usually need a place from where to operate their business; this benefits the commercial real estate investor. On the other hand, if the economy isn’t doing so well, then the CRE investor also tends to suffer financially.
Since CRE investors don’t have that steady income, they may be turned down for a loan by traditional lenders. Fortunately, stated income loans usually don’t require a paycheck given to them by an official employer. Instead, lenders rely on assets rather than income to determine whether someone is eligible for a loan. The investor may use their bank statement or tax return to show how much they have. Hopefully, the investor has saved a portion of their money and invested wisely, so they have sufficient assets and cash in the bank, even if they may be experiencing a slow period.
Stated income loans also tend to be approved faster than traditional loans. This can greatly benefit CRE investors who may need to obtain the loan quickly in order to be able to purchase that great property. In a market where multiple investors may be after the same property, having to wait around for a bank to approve the loan may put them at a considerable disadvantage.
The commercial real estate industry often has its ups and downs, and traditional lenders may not be willing to take the risk. Nevertheless, investors often have other options for their financing needs.