Hey all! My plan so far has been to purchase a 5+ unit value add property. I like idea of being able to create equity through better management.
Today I spoke to a bank about a commercial loan (I don't have a deal I hand, but want to have my ducks in a row for when I do). The loan officer said they do not look heavily on the NOI of the property when determining equity. Rather, they look at the market ability in the area (what other like properties are selling for). With this, I'm not able to add the major equity in the property to refinance then use the equity as a DP on larger properties & repeate it over and over. I'm in a very rural area. She explained that most commercial lenders in my area (Ashland, KY/ Huntington, WV/ Ironton, OH) determine appraisals by comps rather than the cap rate.
Has anyone ran into this problem before? For other commercial value add investors, how did you finance? And, is it really doable to increase NOI by $6,000 and equating that to $75,000 in equity with an 8% cap rate?
Thanks for your help!
The reason lenders are only looking at comps is because they only thing they care about is how much they can sell it for should they have to take ownership through default. If you are short on cash (what it sounds like from your post) you will have to either access another avenue to purchase another property or buy low enough on the property you buy such that you have room for adding value through rehab.
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