Let’s look at 2 properties: property #1 has 8% cap and property #2 with 7.25% cap:

1. The first property is purchased for $3M. The lender provides a $2.1M loan (70% LTV) at 7.25% interest.
2. The second property is also purchased for $3M. The lender provides a $2.1 loan (70% LTV) at 6.25% interest

.......................................Property #1 ($3M, 8% cap)......Property #2 ($3M, 7.25% cap)
Net Operating Income .......$240,000................................$217,500
Loan amount.....................$2,100,000..............................$2,100,000
Down payment..................$900,000.................................$900,000
Loan interest.....................7.25%.....................................6.25%
Annual Interest payment...$152,250.................................$131,250
Income before tax............$87,750...................................$86,250
Investment equity return...9.75%......................................9.58%
Appreciation rate...............1% per year............................3% per year
Appreciation value.............$30,000...................................$90,000
Total return.......................13.08%...................................19.58%

While property #1 offers higher cap rate than property #2, the return of equity for property #2 is almost the same as property #1. This is due lower interest rate of 6.25%. Why does property #2 get lower interest rate? There are many factors that determine the interest rate:

• Loan amount: In residential mortgage if you borrow less money, i.e. a conforming loan, your interest rate will be the lowest. When you borrow more money, i.e. a jumbo or super jumbo loan, your rate will be higher. In commercial mortgage, the reverse is true! If you borrow $200K loan your rate could be 9%. But if you borrow $3M, your rate could be only 5.9%! In a sense, it’s like getting lower price when you buy an item in large volume at Costco.
• Property type: the interest rate for a single tenant night club building will be higher than multi-tenant retail strip because the risk is higher. When the night club building is foreclosed, it’s much harder to sell or rent it compared to the multi-tenant retail strip. The rate for apartment is lower than shopping strip. To the lender, everyone needs a roof over their head no matter what so the rate is lower for apartment.
• Age of the property: loan for newer property will have lower rate than dilapidated one. To the lender the risk factor for older properties is higher so the rate is higher.
• Area: if the property is located in a growing area like Atlanta metro the rate would be lower than a similar property located in the rural declining area of Arkansas. This is another reason you should study demographic data of the area before you invest in the property.
• Tenant: single-tenant property with a brand name/national tenant, e.g. Walgreens will get a lower interest than local tenant.
• Location: the retail center next to Walmart will probably get a lower rate than a retail center shadow anchored by a local furniture store.
• Your credit history: similarly to residential loan, if you have good credit history, your rate is lower.
• The lenders
  Interview with Super Affiliate Scott Hazard
  Lisa Picarille: Well, thank you to Scott Hazard with Brightside Media for joining us today. Scott has agreed to let us ask him some fascinating questions about the world of affiliate marketing. And I think Shawn's going to chime in with some questions specifically about data feeds.Shawn Collins: Yeah, I'm very curious about Scott's opinions and experiences since he's been dealing with the data feeds a lot and he has some great insight.Lisa: Scott is the long time, what we often call, super affiliate. And back in October he launched a PPC-driven affiliate operation that was funded completely by venture capitalists called Cooperative Affiliates. Scott, I'm wondering if you can tell us a little bit about Cooperative Affiliates and then how that idea came about.Scott Hazard: The idea cam
  t Operating Income .......$240,000................................$217,500
  Loan amount.....................$2,100,000..............................$2,100,000
  Down payment..................$900,000.................................$900,000
  Loan interest.....................7.25%.....................................6.25%
  Annual Interest payment...$152,250.................................$131,250
  Income before tax............$87,750...................................$86,250
  Investment equity return...9.75%......................................9.58%
  Appreciation rate...............1% per year............................3% per year
  Appreciation value.............$30,000...................................$90,000
  Total return.......................13.08%...................................19.58%
  
  

  While property #1 offers higher cap rate than property #2, the return of equity for property #2 is almost the same as property #1. This is due lower interest rate of 6.25%. Why does property #2 get lower interest rate? There are many factors that determine the interest rate:

  • Loan amount: In residential mortgage if you borrow less money, i.e. a conforming loan, your interest rate will be the lowest. When you borrow more money, i.e. a jumbo or super jumbo loan, your rate will be higher. In commercial mortgage, the reverse is true! If you borrow $200K loan your rate could be 9%. But if you borrow $3M, your rate could be only 5.9%! In a sense, it’s like getting lower price when you buy an item in large volume at Costco.
  • Property type: the interest rate for a single tenant night club building will be higher than multi-tenant retail strip because the risk is higher. When the night club building is foreclosed, it’s much harder to sell or rent it compared to the multi-tenant retail strip. The rate for apartment is lower than shopping strip. To the lender, everyone needs a roof over their head no matter what so the rate is lower for apartment.
  • Age of the property: loan for newer property will have lower rate than dilapidated one. To the lender the risk factor for older properties is higher so the rate is higher.
  • Area: if the property is located in a growing area like Atlanta metro the rate would be lower than a similar property located in the rural declining area of Arkansas. This is another reason you should study demographic data of the area before you invest in the property.
  • Tenant: single-tenant property with a brand name/national tenant, e.g. Walgreens will get a lower interest than local tenant.
  • Location: the retail center next to Walmart will probably get a lower rate than a retail center shadow anchored by a local furniture store.
  • Your credit history: similarly to residential loan, if you have good credit history, your rate is lower.
  • The lenders
    Is This Uranium Bull Market For Real?
    In light of Toshiba’s recent proposed acquisition of Westinghouse Electric from the government-owned British Nuclear Fuels (BNFL), historians may be reminded of former Westinghouse Chairman Robert Kirby’s litigious international outcry and prolonged battle over secretive and illegal price manipulation by a global uranium cartel. In the 1970s, Westinghouse, determined to capture the world market of building nuclear reactors, offered dirt-cheap nuclear fuel as part of its incentive to get sales from utility companies. The company’s 27 utility customers had locked in agreements with Westinghouse to provide them with 65 million pounds of U3O8 over the next twenty years, well into the 1990s. Those contracts set off one of the most curious legal battles of the 1970’s, ultimately reducing Westinghouse to a shell of the powerhouse it once was.
    ......$90,000
    Total return.......................13.08%...................................19.58%
    
    

    While property #1 offers higher cap rate than property #2, the return of equity for property #2 is almost the same as property #1. This is due lower interest rate of 6.25%. Why does property #2 get lower interest rate? There are many factors that determine the interest rate:

    • Loan amount: In residential mortgage if you borrow less money, i.e. a conforming loan, your interest rate will be the lowest. When you borrow more money, i.e. a jumbo or super jumbo loan, your rate will be higher. In commercial mortgage, the reverse is true! If you borrow $200K loan your rate could be 9%. But if you borrow $3M, your rate could be only 5.9%! In a sense, it’s like getting lower price when you buy an item in large volume at Costco.
    • Property type: the interest rate for a single tenant night club building will be higher than multi-tenant retail strip because the risk is higher. When the night club building is foreclosed, it’s much harder to sell or rent it compared to the multi-tenant retail strip. The rate for apartment is lower than shopping strip. To the lender, everyone needs a roof over their head no matter what so the rate is lower for apartment.
    • Age of the property: loan for newer property will have lower rate than dilapidated one. To the lender the risk factor for older properties is higher so the rate is higher.
    • Area: if the property is located in a growing area like Atlanta metro the rate would be lower than a similar property located in the rural declining area of Arkansas. This is another reason you should study demographic data of the area before you invest in the property.
    • Tenant: single-tenant property with a brand name/national tenant, e.g. Walgreens will get a lower interest than local tenant.
    • Location: the retail center next to Walmart will probably get a lower rate than a retail center shadow anchored by a local furniture store.
    • Your credit history: similarly to residential loan, if you have good credit history, your rate is lower.
    • The lenders
      Business Intelligence Outsourcing - Another CRM?
      The rapidly changing needs for data access and information accuracy become the main goals of business intelligence outsourcing. The companies, specializing in business intelligence outsourcing provide a variety of services and help company executives and other members make the right decisions and essentially boost the business performance.Most business intelligence outsourcing companies offer their services in the following areas: enterprise resource planning (ERP), multidimensional analysis, datawarehouse and datamart conception, business performance management (BPM), budgetary planning and modeling, (BSC) balanced score card systems, consolidation, datamining, reporting, dashboards. The divisions, which are mostly interested in business intelligence outsourcing services, include Sales, Finance, Marketing, Human Resources.<
      ow $3M, your rate could be only 5.9%! In a sense, it’s like getting lower price when you buy an item in large volume at Costco.
    • Property type: the interest rate for a single tenant night club building will be higher than multi-tenant retail strip because the risk is higher. When the night club building is foreclosed, it’s much harder to sell or rent it compared to the multi-tenant retail strip. The rate for apartment is lower than shopping strip. To the lender, everyone needs a roof over their head no matter what so the rate is lower for apartment.
    • Age of the property: loan for newer property will have lower rate than dilapidated one. To the lender the risk factor for older properties is higher so the rate is higher.
    • Area: if the property is located in a growing area like Atlanta metro the rate would be lower than a similar property located in the rural declining area of Arkansas. This is another reason you should study demographic data of the area before you invest in the property.
    • Tenant: single-tenant property with a brand name/national tenant, e.g. Walgreens will get a lower interest than local tenant.
    • Location: the retail center next to Walmart will probably get a lower rate than a retail center shadow anchored by a local furniture store.
    • Your credit history: similarly to residential loan, if you have good credit history, your rate is lower.
    • The lenders
      Could Interesting Corporate Gifts Benefit The Bottom Line?
      Business relationships much like personal ones are built on impressions. These impressions spring forth from how one entity presents itself and is perceived by another. The world is built on these emotional structures which guide our judgments on how we interact and exchange thoughts, ideas as well as with whom we will share our commercial activity for mutual gain.The business environment which surrounds us, therefore, depends upon kinship between companies with the goals of a shared success in mind. Each side of the partnership has a vested interest in cultivating a positive image to the other. This is for the purpose of gaining the attention and respect that could lead to a state of connectedness for the purpose of profit and company health on both sides.One way to bring about a fruitful union on a corporate level would
      the rate is higher.
    • Area: if the property is located in a growing area like Atlanta metro the rate would be lower than a similar property located in the rural declining area of Arkansas. This is another reason you should study demographic data of the area before you invest in the property.
    • Tenant: single-tenant property with a brand name/national tenant, e.g. Walgreens will get a lower interest than local tenant.
    • Location: the retail center next to Walmart will probably get a lower rate than a retail center shadow anchored by a local furniture store.
    • Your credit history: similarly to residential loan, if you have good credit history, your rate is lower.
    • The lenders you apply the loan with. Each lender has its own rates. There could be significant difference, e.g. over 1%, in the interest rate for the same property. If you apply for a commercial loan yourself, chances are you will pay a higher rate because you apply for the loan at the “wrong” lender. Commercial loans are very different from residential loans. So you should work with someone specialized on commercial loans to shop for the lowest rates.
    • Prepayment flexibility: If you want to have the flexibility to prepay the loan then you will have to pay higher rate. If you agree to keep the loan for the term of the loan, e.g. conduit loan, then the rate could be 1% lower.
    • Soil Contamination Risks: Loan for a shopping center with a gas station will probably has higher interest rate as the gas station has a high risk of oil leak which could contaminate the soil.
    
    
    Commercial properties also appreciate at different rates. When appreciation is factored into the return, even at a conservative 3% rate, property #2 has almost 50% higher return than property #1, 19.58% vs. 13.08%. The following are some of the factors that may influence the appreciation of a property:
    
    
    • Demographics: in a growing area where more people are moving in than moving out then the appreciation is likely to be high. The more affluent area is likely to have higher appreciation than a low-income area.
    • Age: 40 year-old property is likely to appreciate slower than 3 year old center.
    • Rent: if the current rent is $1.25/SF while the market rent is $2/SF, the property has upside potential when the lease is renewed. If the property has strong annual rent increase, e.g. 3-4%, the net income will be higher next year. Higher income will result to higher property value.
    • Location: a property at a good location, e.g. just off freeway exit, is likely to get a better appreciation.
    • Demand and supply: in a market where there are more buyers than sellers the appreciation should be higher.
    • Inflation: construction materials cost more every year due to inflation and strong demand in developing countries. For example cement, lumber, steel and copper cost more now due to strong demand from China. Labor costs also increase due to inflation. Fees for various construction permits also increase for various economic and political reasons. As a result, construction expenses go up.
    
    So it’s important to work with a experienced broker who does business in various states and can provide you a big picture of the market.
    
    Conclusion: You should evaluate the return of investment based on:
    
    
    1. Cap rate the property offers,
    2. Interest rate that you will pay, and
    3. Potential appreciation the property generates.
       
    
    It’s not a bad idea to have a broker with knowledge & experience about both co