4.25% Interest Rate on Commercial Loans

I mentioned a perfect storm in a previous blog, which was lower interest rates and lower prices for commercial property.  But now the rates are coming down even more,  and I have to bring it up again, with more detail, so you don't miss it.

Some Commercial lenders have lending rates that mirror the Bond Market. Interest rates are tumbling in the Bond Market, so the these Commercial loan rates by lenders are spiraling down as well. This is one of those times where business owners who are dissatisfied with their facilities need to look closely at what they are spending on rent.

Let's crunch some numbers: Renting 8,000 square feet at $10 per square foot is $80,000 annually, or $6,666 monthly. If the space is for sale for $100 per square foot, as many are right now, that's $800,000 purchase price.

In order to qualify for rates like these, you need at least 20% down and occupy more than 50% of the space.

$800,000 X 20% Down payment = $160,000
Purchase price $800,000 - $160,000 = $640,000
Annual debt service on $640,000 at 4.25% with a 20 year amortization = $47,557 or $3,964 monthly.
Even if you are paying less than $10 per square foot to lease, it is still phenomenal.

Lease rate samples:
$8 X 8,000 sq ft = $64,000 $5,334 Monthly
$7 X 8,000 sq ft = $56,000 $4,667 Monthly
$6 X 8,000 sq ft = $48,000 $4,000 Monthly
$5 X 8,000 sq ft = $40,000 $3,333 Monthly

You cannot make your cash work for you better than building equity in your own property. If you can pay less, then it is outside of reality.

Here are some amortization numbers on some other sample amounts, You should be able to estimate your actual numbers from these

Loan Amortization samples:
Loan $ 500,000 at 4.25% amortized on a 20 year scale with five & ten year balloons $ 3,096
Loan $ 250,000 at 4.25% amortized on a 20 year scale with five & ten year balloons $ 1,549
Loan $1,000,000 at 4.25% amortized on a 20 year scale with five & ten year balloons $ 6,192
Loan $2,000,000 at 4.25% amortized on a 20 year scale with five & ten year balloons $12,384
Loan $3,000,000 at 4.25% amortized on a 20 year scale with five & ten year balloons $18,578

With these kinds of numbers, you might want to invest in your company instead of the stock market. Call me, let me help you find better space and a better bottom line for you and your business.