As a commercial real estate (CRE) investor, it’s important to understand the different types of lenders available and which one aligns best with your financial goals. While there are many factors to consider when selecting the right lender for your needs, understanding the differences between national, regional, local, and online lenders can help you make an informed decision, especially when it comes to triple net (NNN) lease investing. Triple net property mortgages tend to come with different terms than gross lease investments.
In this blog post, we share the pros and cons of each type of lender — national, regional, local, and online — and how their mortgage processes can potentially impact your NNN investment’s return on investment (ROI) and internal rate of return (IRR).
National Commercial Mortgage Lenders
National commercial mortgage lenders, such as big-name banks and mortgage companies, typically offer access to larger loan amounts with competitive interest rates, which can increase your IRR. They may offer greater flexibility when it comes to loan terms, including longer repayment periods and lower down payment requirements, which can also have an effect on your return on investment.
On the downside, national lenders typically require more paperwork and take longer to process loan applications than regional or local lenders. Additionally, some national lenders may not be familiar with or perform a lot of NNN property loans, and it’s possible they may not know market specifics in areas across the nation.
Regional Commercial Mortgage Lenders
Regional commercial mortgage lenders typically specialize in a specific area or region of the country. This allows them to be more knowledgeable about local market trends, which helps them better assess the risk associated with certain investments. Regional lenders typically offer competitive interest rates and a variety of loan products tailored to meet specific borrower needs, increasing your opportunity to borrow with less paperwork and a faster turnaround.
The downside here is that their loan amounts might be smaller than those offered by national lenders, their interest rates could be slightly higher than national lenders, and they may not offer as much flexibility in terms, such as repayment periods or down payments, all of which can impact your cash-on-cash return.
Local Commercial Mortgage Lenders
Local lenders are typically smaller institutions, such as locally owned banks and credit unions, that specialize in offering loans within a specific geographic area or region. They can have less stringent requirements compared to national or regional lenders and can often provide more personalized service due to their intimate knowledge of local markets. This can make it easier to acquire a loan that fits your exact needs.
On the other hand, local lenders’ loan amounts are often smaller than those offered by larger institutions, so they may not be able to finance bigger investments. Additionally, they may not offer all the same benefits as larger institutions, such as flexible repayment periods or lower down payment requirements, which can eat into your returns.
Online Commercial Loan or Lending Marketplaces
Online commercial lending marketplaces, such as Smartbiz or Funding Circle, make it fast and easy to get competitive rates on a commercial mortgage. You plug in what you need in an online form and the computer connects you with multiple loan operators to find the most competitive loan terms for your needs. This is a fast and free way to get started with your commercial loan.
However, online marketplaces are not hassle-free. Many customers complain that once they hit “send,” they are hounded daily via emails and phone calls for weeks and months by lenders wanting their business. Moreover, online lending marketplaces typically don’t offer the guidance you may need from an experienced broker, and most don’t offer loans beyond $500,000. Online marketplaces could make investing more complicated, which can block your ability to stay competitive when making an offer.
Specialty Triple Net Lenders
Specialty triple net lenders can be in each category: national, regional, local, and the online marketplace, but they tend to be mostly national.
Since NNN mortgages are secured by the investment-grade, single-tenant corporations that tenant the properties, like Dollar General or Walgreens, or high-credit tenants with acceptable financial statements, such as large franchisees or privately owned companies, they are considered low risk. This risk level allows NNN specialty lenders to offer extremely competitive interest rates and loan terms, such as fixed rates that match the 5, 7, 10, or 20-year lease term. They also tend to require less paperwork and offer faster pre-approvals and low step-down prepayment penalties. Specialty NNN lenders tend to offer the best terms when it comes to essential NNN lease properties, which helps with profitability.
The only downside is that you may not know the names of specialty lenders like you do the big companies on Wall Street, so it pays to do your due diligence before entering a contract. Research the lender’s BBB rating, read reviews that are not on its website and try to find the company’s financial information, whether it’s a privately owned company or a publicly traded company. The size of the company does not necessarily mean it’s a more trustworthy company.
Which Commercial Lender is the Best Choice for NNN Investing?
Before you decide which commercial lender is the best choice for your triple net lease investment, the first thing you want to do is engage a buyer’s advisor to walk you through the process. There are multiple factors to consider when taking out a commercial loan and choosing the lender, beyond who has the best interest rate — namely your risk tolerance and financial goals. You want to do what is best for you.
Your NNN advisor will help you answer questions like these before you make any decisions:
- Do you have the net worth (without the value of your home) required to get a commercial loan?
- Are you borrowing as an LLC or corporation?
- Do you know how much you want to borrow?
- Do you plan to live on the rental income?
- Will the rental income service the debt?
- Do you need a bridge loan, a short-term ARM loan, or will it be for the length of the lease?
- How do you know which type of loan is better for your goals?
- Do you understand the fees associated with different mortgages and loans?
- How comfortable are you borrowing from lender outside of your local area?
- And more!
You can’t logically decide on a lender — even if you have a long-term banking relationship — until you gather all the facts, create an investment strategy, learn which NNN properties best fit your goals, and create an exit plan. When you and your buyer’s advisor have an executable plan, you will most likely end up with a totally different NNN investment strategy than you had initially, one that provides exactly what you need to live the life you desire with the best financial outcome.
To Wrap it Up — Your NNN Investment Goals will Determine Which Lender You Choose: National, Regional, Local, or an Online Lending Marketplace
Choosing between national, regional, local, and online lenders for a NNN investment requires careful consideration of multiple factors including lender viability, interest rates, loan amount, loan terms, service quality, and triple net lending experience. But the most important consideration is your goals.
National, regional, local, and online lenders each have their own unique advantages and drawbacks that must be weighed against taking on debt and what it means to your financial future. The easiest way to determine which commercial lender to choose is to engage a Westwood Net Lease Advisor. We specialize in triple net lease investments and 1031 exchanges, helping clients with every step of the process, from before the property search through closing, and often thereafter, at no cost to you. Contact our helpful team today for a no-obligation conversation. 314-997-5227