Debt and Taxes — The Unavoidable in Commercial Real Estate
A few weeks ago, we sat down with our Director of Sales, Daniel Roehl, to talk about the impact that LoanBoss is having on the real estate industry. There was one topic we discussed that we thought deserved its own post — debt and taxes.
For most real estate transactions, debt is the number one cost center for a deal, followed by taxes and salaries.
“...in this the real estate world, nothing is certain except death debt and taxes”
Benjamin Franklin Daniel Roehl
Debt generates expenses in the form of upfront closing costs, ongoing debt service payments, and even exit fees or prepayment penalties. If not properly modelled out, these can come back to bite you later, and ruin an otherwise carefully managed deal.
One of the biggest risk factors around debt are interest rates. That liability is unavoidable. Even with fixed rate debt, you’re just shifting when you take on the risk.
Prepayment penalties are a huge risk factor for many borrowers. For a lot of borrowers, the prepayment penalty on a loan is akin to buying a car but not being allowed to know the price until all of the paperwork has been completed. Computing prepays can be difficult — even for experienced borrowers, these complex calculations are prone to human error, especially if done by hand.
You or someone you know has more than likely had a deal go sideways because the prepayment penalty they underwrote was not the penalty they ended up paying at the closing table.
It’s not the fault of the borrower; it’s just not their field of expertise.
Debt management platforms like LoanBoss help alleviate risk and empower borrowers to understand the costs around their debt. LoanBoss also helps borrowers model out different risk scenarios so they can immediately see the impact of changes to the market on their debt.
You wouldn’t dream of managing a complex real estate portfolio without a dedicated platform, so why wouldn't you do the same thing for your debt?
There’s only one thing absolutely certain with Commercial Real Estate transactions — debt and taxes. LoanBoss can help.
Have questions about how LoanBoss can help manage your debt?
Check out Loanboss.com! Or schedule a demo here.