There are a number of costs associated with the closing of a commercial real estate property that vary depending on the particular circumstance and specific stage in the process. It is important for investors to be aware of all potential costs and understand what type of investments certain costs are associated with.
Types of Fees To Expect When Closing a Commercial Real Estate Loan
Credit Check - Having a good credit score is extremely important when applying for a commercial real estate loan. The cost of this fee is dependent on how many investors are involved in the deal.
Lender Processing and Underwriting - This fee is typically collected as a non refundable deposit at the beginning of the loan process and should be clearly outlined in the terms.
Appraisal - In order to move forward in the loan process, the property must be appraised by a third party. The appraiser will look at the condition and value in terms of size, location and type.
Inspection - An inspection may be required to determine the scope of renovations or construction (if ground up) to complete the project. Inspections will generally tie back to the budget. Inspections are typical for heavy renovations and new construction and usually take place before, during, and at closing to ensure completion. The cost of these inspections depends on the size and type of the property and the severity of renovations required.
Environmental Report - An inspection specifically reporting environmental issues is required during phase 1 and phase 2 of inspections. Passing the phase 1 inspection, or immediately addressing issues, can save the investor money during the phase 2 inspection.
Title Insurance Policy - Title insurance is delivered to the lender by the title company in order to protect them in the event that claims come up against the title of a property. Expect fees for a title search to uncover any existing claims. Once the claims have been resolved, the process will continue.
Lender Origination Points - Origination fees, or points, are determined by the specific lender. These fees are associated with the evaluation, processing, and approval of the loan.
Commercial Mortgage Broker - A commercial mortgage broker may or may not be involved in the financing portion of a transaction. If the investor chooses to involve a broker, a fee will be set.
Legal Fees - Lenders and borrowers will be responsible for legal fees and will depend on the size of the loan and complexity of the transaction.
Mortgage Registration/Recording Tax - This fee is location dependent, but it is still important for investors to have on their radar. It can either be a flat rate fee or a percentage of the loan amount.
All of these fees are common when obtaining financing for commercial real estate investment properties. Understanding the fees that will incur for a particular deal and leaving room for miscellaneous expenses will help secure the propensity to maximize returns on an investment.