What happens if a commercial property is overpriced?
Today we had a loan blow up on a Bed and Breakfast due to the selling price being too high. The borrower is qualified and financially able to buy the property but it is overpriced and will not carry the debt load.
A commercial income producing property that is overpriced is just wasting time. When the MAI appraiser does the appraisal, he will use the income approach in his calculation. It is usually 10X earnings so if it is making $50,000 per year it is worth about $500,000. This is not set in stone but it should be close.
The good news is he can now re negotiate the sales price so the property will debt service or find a property that is a better value. Either is better than buying a property that loses money.
So before applying for a commercial loan, make sure the property will have a DSCR of at least 1.25%. If you do not know how to calculate it give us a call and we will do it for you.