A number of “property performance” materials will be requested during the application or underwriting process for a loan or refinancing up to $5M.
These documents provide information on the financial activity at the property over a set period of time, and are used by the lender to assess the ability of the property owner (or other borrower) to repay the loan.
Details on a few kinds of property performance documents are provided below.
Rent roll: The rent roll is the most critical document in formulating the value of income property, because it provides a snapshot of the recurring revenue coming into the property through rent payments every month. The rent roll will state the start and end date of each tenant’s obligation to pay rent, per the terms of their leases.
Leases: The lender may also want to review the actual leases for your residential or business tenants for more detailed information on tenant mix, expiration dates, and the potential for their rents to be changed over time. This is especially true when buildings are being renovated or rehabbed in order to increase the amount to be charged in rents.
Maintenance: Documents related to your maintenance and improvements to the property may also be requested. These can include any contracts with third parties who clean, fix, or otherwise work on the property. Assessing these documents can help a lender understand the amount of maintenance required to keep up the property’s existing condition.
Profit & Loss (P&L): A profit and loss statement (or P&L) is a financial statement that summarizes the revenues, costs and expenses incurred during a specific period of time – usually a fiscal quarter or year. Your lender may review P&L statements going back as many as 5 years to know how money has moved through the property to date, or how a renovation or rehab loan could help improve property performance.
Taxes/Insurance: Lenders will also want to know that all necessary taxes and insurance payments on the building have been made. Information on insurance premiums and tax rates is also used by lenders to help understand the affordability of the loan and the level of risk involved, which affect the rates and yield the lender will consider appropriate.