What is the the real cost of capital? Most individuals looking to purchase an asset do so from the wrong position. This presentation will explain the true cost of capital and interest rates. Before you make a considerable purchase, review this presentation and save yourself time, energy and money.

1. The Truth To Interest Rates & Cost Of Capital
www.BHCLMerchantBankers.com

2. It is hard for me to calculate the number of
applications I see in a month where the
applicant has unreasonable expectations
about interest rates and cost of capital.
I then see the seasoned applicant that has a
more realistic approach to what it will
take to finance his request.

3. He is the guy I am after 100% of the time.
I truly strive to do business with high quality
clients and seasoned professionals that either
know what they don’t know or have the
capacity to dissect and understand the
marketplace and its expectations.

4. However I want to provide you with a
clear and distinct guide to unravel the
mystery of the interest rate and cost of
capital. So, here we go…

5. First of all, rate for real estate financing is
primarily affected by;
1. Cash in
2. total equity (LTV)
3. Credit and past and or future
performance.
Let’s break that down...

6. Let’s say you are only capable of putting 5%
down on a million dollar property.
You can expect that the rate will begin to be
elevated higher than prime.
Then add to the fact that that 5% along with
the total value of the asset is only reflecting
a an 90% LTV, by appraisal, interest rate is
going to escalate even more.

7. Next, let’s say that the asset has not
performed.
(NOI) well in the preceding years or
improvements are not going to make the
needle jump to any great extent then you
can expect that the interest rate is going to
climb yet again.

8. Finally your credit is in question and you have not
had a great last three years and it shows on your
credit report.
You can expect that the interest rate is going to
increase proportionately.
Looking back you can see that this is not the ideal
application. But you want to move forward.

9. So now you are looking over the
commitment letter and it indicates you are
going to be paying an annual rate of 18%
along with 5 points up front and closing
costs of another $15,000!

10. Now add in the appraisal cost,
miscellaneous costs and third party reports
and you absorbed another $8,000.
You really need to ask yourself…

11. • Is this asset really worth it?
• Is this asset going to perform in light of
the fact I am paying out the nose to get it
financed?
• Can the rate and cost of capital (all other
costs added together) really allow me to
generate a return?

12. These questions must be asked. And if you
can generate a return with all considered as
outlined above then so be it.
But with all in as described above I think it
would be an uphill battle.

13. Now Let’s Reverse The Story

14. You can commit to 30% cash down.
You then have a 65% LTV all considered
inclusive of the appraisal results.

15. The past performance of the asset appears
to generate a strong NOI and your
proposed improvements will make the
needle jump up a bit more and improve the
NOI yet again.

16. Your credit is in the 700’s and you have
strong secondary income.
All these factors make you a PRIME
borrower and candidate.

17. Your commitment letter indicates you are
going to pay 5.75% annual interest and one
point at closing.
Then the other costs are incidental. It all
fits together.

18. These combined factors make it all
worthwhile.
It is a good and sound decision to go
forward.

19. Now you may fit somewhere in between
these two examples. You still need to ask
the same questions as I mentioned above.
But the moral of the story is that not
everyone is a PRIME borrower.

20. You should and need to realize that interest
rate and cost of capital greatly affect the
decisions you make about asset acquisition.
You really need to be realistic about your
expectations as to interest rate and cost of
capital.

21. Just because you think you are acquiring a
great asset does not mean that you can
ignore all the other factors related to
financing.
So let’s look at a checklist of factors as part
of the guide.

22. A) How much cash can I afford to put
towards the acquisition? 5% 10% 20% 30%
40% (the higher the number the lower the
rate)
B) What will my total LTV be? 90% 80%
70% 60% ( the lower the number the lower
the interest rate)

23. C) How can I improve the NOI on the
asset? 2% 5% 7% 10 % (the higher the
number the lower the interest rate)
D) Will my credit withstand scrutiny?
500 600 700 800 (the higher the number the
lower the interest rate)

24. E) In the end with all cost of capital and
interest rate is the acquisition going to
generate adequate returns?
Cost of capital 10% 20% 30% Interest rate
5% 6% 7% 8% 10% 12% 15% 18% 20%

25. Now You Can See A Clear Pattern

26. This is the matrix of factors that indicate
where you stand in the marketplace of real
estate asset financing.
Use this as your guide to make sound
decisions.

27. Use this as your guide to measure what
kind of applicant you are.
And ultimately use this as your guide to
acquire attractive and sound real estate
assets.

28. Contact us today and one of our experienced
bankers will be available to assist you with
evaluating your next commercial real estate
purchase.

29. Direct: 505-265-5123
http://www.BHCLMerchantBankers.com

30. This presentation was prepared by George Lovato
Jr., Principal of BH Capital Ltd. and BHCL Merchant
Bankers.
Contact Information
Office: 505-265-5123
Address: 2527 Virginia St NE STE F
Albuquerque NM, 87110
Website: www.BHCLMerchantBankers.com
www.BHCapitalLtd.com
Just Ask George webcast:
https://www.youtube.com/user/BHCapitalLTD
Linkedin: www.linkedin.com/in/georgelovatojr/