Global Cash Flow – Real Estate Financing’s Newest Buzz Word
There is nothing worse than finding just the right investment property that you know will make you great income, only to have the opportunity fall through because you got turned down for financing. It’s even worse when you see someone else pick up the property and make a fortune. It’s a devastating feeling, but one that real estate investors face every day with all of the changing lending guidelines.
You located the perfect investment property, put in an offer, and got it under contract before anyone else even knew it was on the market. You thought you were prepared to close quickly and had the financials all lined up. Your financial statements were in order, the money was sitting in the bank for the down payment and reserves, you have good credit, and the financial underwriting of the property looks great. The banker even told you he loved the property and thought you were getting a great deal. But, he regretfully informed you that “they wouldn’t be able to make the loan.” To try and make you feel better, he even said they would have financed it a few years ago without blinking an eye.
It should have been a “no brainer,” so you ask the banker, “what happened?”
He explained that while the property met all of the previous lending guidelines, the bank had recently made some changes to their lending guidelines. “Your global cash flow just wasn’t strong enough and that is something the bank now relies heavily on for their loans.”
“Global cash flow?”
While you knew that lenders would underwrite the asset’s cash flow and its ability to cover the expenses and debt service, you may not be aware that lenders will spend just as much or more time focusing on your personal or your sponsor’s ability to cover ALL of your liabilities. Lenders call this underwriting the “global cash flow.” And it’s quickly becoming the new buzz word in real estate lending.
What is Global Cash Flow and Why Does It Matter?
Global cash flow is one of those lending guidelines that you may not have heard of yet, but you will soon. Global cash flow is a borrower’s net cash flow from all sources of income, minus all expenses and interest. Lenders will include all of your income including that from employment, dividends, investment income, real estate and businesses. Expenses will include all business as well as personal operating costs, including personal debt such as home mortgages, credit cards, and auto loans. Read full article.
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