Clopton Capital Founder Opines on Keeping Risk Low, and Profits High in Commercial Real Estate

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Jake Clopton offers his expert advice on how to best invest in commercial real estate loans in today's markets.

The CRE market is coming into and has been seeing very difficult times and knowing how to invest and approach CRE opportunities is what is going to make or break players in the market. Successful investing depends on keeping risk low and profit high, and with these few tips, that becomes much easier.

The first thing you need to evaluate is the risk involved in any commercial real estate loan and where exactly it is coming from. In the CRE market, risk comes from asset values and their ability to repay debt. There is high volatility in both of these factors at the moment coming from fluctuating CRE prices and a depressed economy. What is here today may be gone tomorrow and there are two ways really to counteract these factors, keep the loan to value (LTV) low and loan commercial loan terms short.

By keeping the LTV low (somewhere around 60%) it creates a cushion against fluctuating prices and loss of repayment ability. This will keep the property supported from going underwater on the mortgage. Keeping the term of commercial loans short protects from the same risk and also from more macro events that may affect the underlying asset.

There are still fantastic opportunities to profit from the CRE market, it's knowing how to attack them in a changing market and protect capital that is going to separate the institutions that profit and the ones that fail. The main point is that if leverage and longevity is kept at a moderate level, any commercial real estate loan can survive the new lending landscape.

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Sean Delehanty
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