Why Tracking Commercial Real Estate Loans is Essential for Success?

In real estate, keeping track of financial obligations is not just a good practice, but also essential for long-term success. With large loan amounts, variable interest rates, and complex repayment systems, commercial real estate loans can quickly become a financial burden if not maintained properly. But still, many investors and property managers overlook the importance of tracking their loans. As a result, financial risks that can easily be avoided increase.

Today, we will show you why it is critical to monitor and keep track of your commercial real estate loans how it helps you earn new opportunities as well.

What Does “Tracking” Your Loan Mean?

Tracking your loan means monitoring your loan’s status and progress throughout the loan lifecycle. It includes understanding where your loan is in the approval process, its current status, and reviewing your loan account statement to see all transactions.

In real estate, it refers to the process of monitoring the performance and status of your mortgage or other real estate loan. This involves going through factors like your loan balance, interest rate, payment history, and overall financial health regularly, especially concerning the property securing the loan.

The Risks of Not Tracking Loans

Not tracking real estate loans can lead to huge financial risks for both borrowers and lenders. The risks for both borrowers and lenders are described below:

Risks for Borrowers

If borrowers don’t keep track of their real estate loans, it can result in missed payments, damaged credit, and ultimately, foreclosure. The risks are described further below:

• Missed Payments: Without proper tracking, borrowers may accidentally miss payments. This can lead to late fines, penalties, and even damage their credit score.
• Damage Credit Scores: Repeated missed payments or defaults can severely damage a borrower’s credit rating, making it difficult and more expensive to secure future loans or credit. And the higher the credit score is, the more it will be damaged.
• Foreclosure: This is the legal process by which a lender attempts to recover the amount owed on a loan by taking ownership of the mortgaged property and selling it. In severe cases, failure to track and make payments can lead to the lender repossessing the property due to non-payment.

Risks for Lenders

Now, for the lenders, there are risks of loan defaults, decreased property values, and increased legal and administrative costs. The risks are described below in detail:

• Loan Defaults and Foreclosure: Lenders may not be aware of missed payments or impending defaults without proper tracking. This can lead to foreclosures and result in significant losses if the property is sold for less than the outstanding loan balance.
• Decreased Property Values: If a property is not properly maintained due to financial distress, its value can decline. As a result, it impacts the lender’s recovery in case of default.
• Increased Legal and Administrative Costs: Dealing with delinquent loans and foreclosures involves substantial legal and administrative expenses. This needs to be avoided with regular loan monitoring.
• Declining Reputation: Lenders may suffer reputational damage if they are perceived as being negligent in managing their loan portfolios.
• Violation of Rules: Not keeping track of loans properly can lead to non-compliance with lending rules and regulations. This can result in fines and other legal penalties.

The Benefits of Proactive Loan Tracking

There are several benefits of proactive loan tracking in real estate. It provides enhanced risk management, improved financial performance, and better decision-making. By closely tracking loan performance, potential issues can be identified early on, risks associated with defaults or delinquencies can be reduced, and overall portfolio health can be improved.

The benefits of proactive loan tracking are described below:

Detecting Risks Early and Reducing Them

Monitoring the loans regularly helps in identifying potential problems early and reducing them by taking the necessary steps. Here’s how it works:

• Identifying Potential Problems: Proactive tracking helps lenders spot early warning signs of loan distress or violation, which could be missed payments, declining property values, or changes in borrower financial situations.
• Preventing Loan Defaults: By identifying these issues early, lenders can work with borrowers to solve issues like loan modifications, forbearance, or repayment plans. This is needed to prevent defaults and potential foreclosure proceedings.
• Avoiding Losses: Properties may still be in relatively good condition and have a higher market value if monitored early. Early detection can significantly reduce the financial losses associated with loan defaults.

Improving Financial Performance

Keeping track of loans can also improve the financial performance for both the lender and the borrower. Here’s how it does so:

• Optimizing Loan Performance: Proactive tracking makes sure that loans are performing as expected. Moving forward according to the plan can ensure consistent interest payments and a stable income stream for the lender.
• Reducing Operating Costs: It also minimizes the need for expensive foreclosure processes and legal actions. Through this, proactive tracking can reduce overall operating costs.
• Better Portfolio Management: It makes it possible to improve the overall performance and profitability of the lender’s loan portfolio. They can make more informed decisions about loan modifications, refinancing options, or other strategies.

Enhanced Decision-Making

Proactive loan tracking can also help to make financial and important strategic decisions more quickly and wisely. Here’s how it improves the decision-making process:

• Informed Investment Decisions: It provides valuable insights and information into loan performance. Lenders can make more informed and thoughtful decisions about future investments and lending practices by keeping track regularly.
• Strategic Planning: Valuable data and information are gathered through proactive tracking. It can be used to develop more effective strategies for managing the loan portfolio and maximizing returns.
• Risk Assessment: It also helps in understanding the factors that contribute to loan performance. Lenders can improve their risk assessment processes and make more accurate predictions about future loan performance.

Tools & Systems for Loan Tracking

We know that loan tracking in real estate is essential for both lenders and borrowers to maintain timely payments, manage risks, and maintain accurate financial records. And for this, various types of tools and systems are used depending on the size of the portfolio, complexity of deals, and other important factors. In fact, lenders that embrace loan management automation witness a significant boost in their financial performance, with a reported 15-20% increase in annual revenue.

Some types of tools and systems for effective loan tracking and their functions are described below:

Loan Servicing Software

This software is designed to manage all aspects of real estate loan servicing. The functions of this software are payment tracking, interest circulation, amortization schedules, and compliance. Some popular loan servicing software are described below:

• LoanPro: This is ideal for real estate and auto loans. It offers automation, Application Programming Interfaces (APIs), and customizable workflows.
• The Mortgage Office: This is a complete servicing platform used by private lenders, mortgage servicers, and note investors.
• FICS- Loan Producer and Mortgage Servicer: This supports commercial and residential real estate. Therefore, this is used by banks and credit unions.

Real Estate Investment Management Platforms

Real estate investment management platforms are systems that combine loan tracking with broader investment tracking tools, especially useful for real estate investors. Some widely used tools for these purposes are described below:

• Juniper Square: This software tracks equity and debt investments. It is a great tool for syndicators and fund managers.
• AppFolio Investment Manager: This tool includes useful features for capital calls, distributions, and investor reporting.
• Yardi Voyager: This is an enterprise-level solution. It offers loan tracking, asset management, and accounting.

Spreadsheet-Based Systems

For comparatively smaller or simpler portfolios, Excel or Google Sheets can work effectively. These are best for small landlords or investors with less than 10 properties. It can help them track loan amount, interest rate, maturity date, payment schedule, and outstanding balance. However, it still has a risk of being prone to errors, lacking automation, and reminders.

Custom CRMs With Accounting Integrations

To keep track of loans, real estate developers and private lenders often use CRMs like Salesforce, integrated with accounting tools, like QuickBooks, NetSuite, etc., for their own customized loan management.

Loan Origination Systems (LOS)

Loan origination systems (LOS) track loans from application to closing. While these are primarily used by lenders, they integrate well with servicing systems. Some examples of LOS are:

• Encompass by ICE Mortgage Technology: This system eliminates complexities and lowers the cost of lending and investing at scale.
• Calyx Point: This is a complete underwriting system that provides lenders with an automated underwriting engine to streamline the approval process, and comprehensive data and analytics to support risk assessment.
• MeridianLink Mortgage: This software helps financial institutions of all sizes deliver faster, smarter, and more personalized lending and account opening experiences.

How a VA Can Help You Track Commercial Real Estate Loans

A virtual assistant can significantly organize and support the process of tracking commercial real estate loans. Hiring a real estate virtual assistant can help you save time and improve accuracy. Here’s how a VA helps you track commercial real estate loans:

Loan Data Entry and Organizing

Virtual assistants enter and maintain detailed records of each loan, including the amount, interest rate, terms, lender, and payment schedule. They also update spreadsheets or CRM tools, like Excel, Airtable, Salesforce, etc., with key dates and metrics.

Payment Tracking and Alerts

Virtual assistants monitor payment due dates and send reminders to make sure that the payments are on time. Moreover, they set up calendar alerts and automated email reminders for interest payments, principal payments, loan maturity dates, and refinancing deadlines.

Financial Monitoring

Real estate virtual assistants track loan balances, amortization schedules, and interest accruals. Alongside, generating summary reports showing outstanding balances and upcoming obligations is also a key activity.

Document Management

Organizing and storing loan agreements, appraisals, title documents, and lender correspondence in cloud storage like Google Drive, Dropbox, etc., is also done by real estate virtual assistants. They also tag and categorize files for easy retrieval.

Loan Covenant Monitoring

Virtual assistants can track and remind you of financial covenants like debt service coverage ratio, LTV ratio, etc. They can also alert you if documents or reports like financial statements are due to lenders.

Refinancing or Renewal Preparation

Real estate VAs can maintain a list of loans nearing maturity and initiate pre-refinancing tasks by gathering documents and identifying lenders. They also schedule calls and meetings or prepare loan packages.

Communication with Stakeholders

Virtual assistants draft or send emails to lenders, attorneys, or partners regarding loan status or document requests. They can also follow up on missing documents.

Tech Setup and Automation Support

Real estate VAs help set up software like Trello, Notion, etc., to visually manage loan timelines and tasks. They integrate tools like Zapier or Integromat to automate repetitive workflows, like email alerts when a payment is due.

Conclusion

So, from the above discussion, we can come to know that tracking commercial real estate loans is more than just an administrative task. It is an important strategy for financial stability and business growth. You can prevent costly mistakes and take refinancing opportunities easily by keeping track of loan tasks, payment schedules, and market conditions. By staying proactive and informed, your investments will be profitable in the long run.

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