Arizona Commercial Real Estate Loans

How to Calculate a Commercial Real Estate Loan Payment and Interest Rate in Arizona

A commercial real estate loan in Arizona is for five units and up. An investor applying for a multi-family loan in Phoenix will need to be prepared to provide financial information about the commercial property’s net operating income. Unlike residential loan lenders, a commercial real estate bank or private lender in Tucson or Scottsdale will primarily consider whether the commercial real estate property itself can generate a profit and not depend on the investor’s personal credit history and personal income qualifications.

Another difference between commercial real estate loans and residential mortgages in Sedona or Flagstaff is that commercial finance is typically a “non-recourse” investment loan. Commercial banks or lenders will not be able to attach an investor’s personal financial assets if the commercial property defaults or forecloses.

Before funding a commercial real estate property located in Arizona, a commercial lender will generally want to see that the investment property will generate positive cash flow. In the commercial real estate finance industry, positive cash flow is referred to as “debt coverage”. The debt coverage ratio that commercial real estate banks in Arizona will underwrite is 1.1 to 1.25 times the commercial loan amount.

Our commercial loan experts at Trim Financial will help you calculate the appropriate debt service coverage ratio in order for you to qualify for financing a commercial real estate property in Arizona. We will help identify if your commercial property investment in Sedona or Mesa will have a positive cash flow, after subtracting for operating expenses and vacancy reserves, of 1.1 to 1.25 times to debt service or commercial real estate loan payment.

To determine the commercial real estate loan debt service coverage ratio or DSCR, underwriters at commercial banks or private equity lenders will want to inspect current rent rolls, which will identify the lease agreements and current tenant profile, rental history reports, and income and expense statements from the minimum time frame of the last two years and YTD (Year-to-date.)

Commercial real estate loans in Arizona are very conservative. Therefore, most commercial banks located in Mesa or Tempe will be reluctant to lend on commercial real estate properties valued under one million dollars. Arizona’s commercial bank’s loan fees and interest rates for investment properties will be significantly higher than residential properties (which are one to four units). Also, commercial property appraisals are more extensive and more expensive than residential appraisals in Arizona. Keep in mind, AZ commercial loans take longer than SFR mortgages.

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