I've been investing in residential properties for the last 10 years, but am just diving into commercial real estate now. To get my feet wet, I was looking at starting with a triple net retail condo.... most likely in the $1M - $1.5M range. However, I'm unfamiliar with the typical loan requirements for this asset class. I've heard anecdotally that downpayment ranges anywhere from 30-50% down (that's a big range), and I've also heard that there's sometimes of a minimum of $1M required on the loan size before banks will want to deal with you. However, there's surprisingly little information that's readily available online. Can someone experienced with NNN investing help me understand what those requirements typically look like?
Contractor · Scottsdale, AZ · Member since 2010 · 2k+ posts · 3k+ votes
3y
You wont have a problem getting a loan on a NNN retail condo as long as the tenant, lease terms, and HOA are strong.
The down payment requirement is going to be largely correlated to the income. A $1M deal that generates $70k per year in NOI will require less money down than a $1M deal that generates $40k per year NOI.
Attorney · Dallas, TX · Member since 2016 · 5k+ posts · 2k+ votes
3y
Those are unpopular loans for most commercial lenders. Underwriting and fixed costs are the same, but with much less in fees for the lender. I'd say yes 30-50% down, it depends much more on how the condo org is being run, reserves, late pay, etc.
Credit unions and your current bank will be your first stop to ask them. bring a specific property to help anchor your discussions.
Investor · Fairfax, VA · Member since 2015 · 1k+ posts · 796 votes
3y
@Jason Leu. I love retail condo's! In today's high interest rate market you're looking at 30-35% down. As long as you meet the 1.2 -1.25 DSCR that the bank requires. Loans are 5 year/ 25 year am. Maybe you can get a longer term depending on the length of the lease. Banks are hungry for business and they will do your loan. Some of the large mortgage brokers won't do deals less than 1 million, but if you go to your local bank you can get any size loan you want. All they care about beyond the deal is your ability to afford the loan. If you pm me I know a few mortgage brokers that can shop smaller loans as well, but you have to pay for their services. The bank that has taken care of me is a regional bank (Atlantic union), and I always give them the first right of refusal because they pick up the phone, keep me in line, and really compete for my business. It's the only bank where I felt there is an actual relationship and in turn I give them my deposits. The only catch is that the deal has to be regional which is fine with me because they cover a large region.
@Ronald Rohde, @John M. - Thanks to both of you for your insights! Given some of the current disruption in the banking world set off by the SVB bank run, I'm a bit wary in taking a loan from a smaller local bank, given that there's increased probability of the loan being called should the bank run into a liquidity issue. That being said, I'll definitely start there and spin up some conversations. (John, thanks as well for the tip regarding Atlantic Union).
@Ronald Rohde, @John M. - Thanks to both of you for your insights! Given some of the current disruption in the banking world set off by the SVB bank run, I'm a bit wary in taking a loan from a smaller local bank, given that there's increased probability of the loan being called should the bank run into a liquidity issue. That being said, I'll definitely start there and spin up some conversations. (John, thanks as well for the tip regarding Atlantic Union).
Why would the loan be called? its a legal contract for duration of the loan regardless of lender liquidity.
Lender · Chattanooga, TN · Member since 2020 · 14 posts · 7 votes
3y
@Jason Leu I would agree with a lot of what has been said above. Minimum down payments for this type of property are typically going to run around 25%, but with the current rates 30-35% would be a safer bet. 5-7 year term / 25 year AM, 1.25x DSCR. I would say if the deal underwrites, your local bank/credit union is more than apt to do these type of deals still. Having those conversations locally & building the relationship with a banker will overall help them become more comfortable with you as a borrower, which in turn helps these deals get across the line with better customer service from the lender. Good luck to you!
Contractor · Scottsdale, AZ · Member since 2010 · 2k+ posts · 3k+ votes
3y
You wont have a problem getting a loan on a NNN retail condo as long as the tenant, lease terms, and HOA are strong.
The down payment requirement is going to be largely correlated to the income. A $1M deal that generates $70k per year in NOI will require less money down than a $1M deal that generates $40k per year NOI.