BiggerPockets

When you say 'broker' do you mean a Real Estate broker or a finance broker?

BTW, depending on the details you may not need either, or just one, or both. Fill us in.

At the chance of sounding like a jerk, these are kind of basic questions to be asking when buying a million dollar commercial property.

No?

Originally posted by Kevin Mace

I have been a broker for 5 years. A broker has the ability to shop your deal to many different lenders they use. Anywhere you go they are going to charge you to do the loan whether it be in the rate or fees you pay at closing. I would use the broker (or me ;-) and get another quote to compare,

Make sure you get a GFE and you are comparing the same product (fixed term, pre-pay penalty, amort. term. etc.) If you want more info or some tips feel free to message me.

Thanks for the info. What is GFE? General Financial Evaluation? How much do you usually charge to broker a loan?

Originally posted by David Peeples

At the chance of sounding like a jerk, these are kind of basic questions to be asking when buying a million dollar commercial property.

No?

I'm sure these are basic questions, so I guess that means they will be easy to answer :wink:

I am a beginner when it comes to buying real estate. Like I said, it is my first deal. I have a great understanding of the concepts, but I have little hands on experience. I've never applied for a commercial loan before, so I have no idea how easy or hard it will be to get good terms.

I don't want to pay 1% cash to a broker to save me half a percent interest. On the other hand, if the broker's commission will get rolled into the loan principle and using the broker means the difference between getting 90% LTV vs. 70% LTV, then it will be well worth it to me.

I am very interested to know how the more experienced investors here acquire their financing. Any and all help is appreciated. :D

Originally posted by Jon Holdman

I seriously doubt you will find a 90% LTV on a commercial deal. At least on the first.

My deals are smaller, but I use a broker.

Commercial loans are MUCH more complex than residential loans. There are many more variables. You will need someone on your side who can get you through the process. Do you know anyone in your area who's done a similar deal? Hooking up with someone with experience, even if you have to pay them, would be a really good idea. Otherwise, you're going to be taken for a ride.

At the very least, go out and grab every book you can find on apartment investing. I'm aware of four or five. They will explain a lot more than we can here.

Ok, thanks for the advice. Yes, I do know a couple of people like that. How do you pay your broker? Cash out of your pocket? Or will the lender let you include the broker's commission into the loan amount?

Run, don't walk, away from any broker that wants an up front fee. Its part of the closing transaction. You'll almost always pay an "origination fee". Using a broker shouldn't cost you any more than going direct to a lender. Certainly, there have been a lot of incidents in the recent past where bad brokers stuck people in bad loans because they generated a bigger commission.

Like David, I STRONGLY recommend you find someone you truly trust who can guide you through this transaction. There are lot of people in this business who prey on folks who don't quite know all the ins and outs.

Commercial is not my can of worms but you want to get a few good faith estimates. I understand your concern about paying points but just as an example let's say you have a 700k loan amortized for 30 years at @ 9%. That would carry payments of $5,632. Now let's say you pay a point (at closing - never in any case should you be paying upfront fees) or $7,000 and get a rate of 8%. Monthly payments would be $5,136 - saving you $496 per month. 7k @ $496 per month would take you just over 14 months to recoup the $7k initial investment. Let's say you stayed in the loan for 30 years - you will have saved $178,560 for $7k. As you can see saying you don't want to pay points may not always be in your best interest.

Generally for short term financing (less than 5 years but you can do the numbers) you want lower closing costs and higher interest rates but for long term financing you are willing to pay let's say$7k to save $170k.

Start with the big lenders for reference and then see what a broker can do for you. I used to use WAMU Commercial a lot, so whoever is similar, now that WAMU went under.

You don't "need" anything. It's really just about choice. Get all the information you can, and choose powerfully. Good luck.

My daughter was a realtor and got involved in several commercial deals. It was a learning experience for her including enviromental impact studies etc. and in the end the deals fell flat after a year of negotiations.

How do you know what to offer if you're new to real estate? Any commercial lender will tell you if they'll do the deal after getting your vitals and pulling your credit but isn't commerical tanking right now? Everything is for sale on our main street. Where will the tenants come from? Who is the listing agent?

I don't like middle men unless they're doing me some good. 1% of sales price
seems like alot just for introducing you to bankers. Be cautious...I just asked an experienced CPA about 1031 exchanges and although he teaches a class he just wasn't up on the changes.