Commercial lending practice

5 Replies

I have done single family BRRRR and am familiar with the process. I stumbled across a deal on commercial property and I want to do the same strategy. All of the commercial lenders I have talked to have told me they will only lend me 70% of invested money (purchase price plus rehab costs). The new appraised value does not matter because commercial real estate is volatile and they want me to have 20% real money in the investment. There has to be a way to do this. What are some creative ideas? Here are the numbers. Purchase 250k 80k rehab. 330k total cash invested. I would need a 475k evaluation after to get all my cash back out. I believe the property to be worth that after rehab.

Originally posted by @Rawn Wilson :

I have done single family BRRRR and am familiar with the process. I stumbled across a deal on commercial property and I want to do the same strategy. All of the commercial lenders I have talked to have told me they will only lend me 70% of invested money (purchase price plus rehab costs). The new appraised value does not matter because commercial real estate is volatile and they want me to have 20% real money in the investment. There has to be a way to do this. What are some creative ideas? Here are the numbers. Purchase 250k 80k rehab. 330k total cash invested. I would need a 475k evaluation after to get all my cash back out. I believe the property to be worth that after rehab.

 If the purchase is 250K and the rehab is 80K, you should be able to get in between 70 and 80% loan to cost.  What type of property is it?  Where is it meaning is it in a city, suburbs, rural?  Lots of questions.  Are you trying to do this with no money out of pocket?  Will the seller hold any paper?

Stephanie

The property is all zoned residential and had a single family house, 2 small apartments, and 2 good sized auto shops with office space. It is in the heart of a great city surrounded by neighborhoods. It’s basically the one small block still left in that area with any kind of businesses on it. The shops were built before city code for commercial buildings was enforced and are grandfathered in. I want to buy, put money into it to get all 5 spaces rented out. I want to refinance and have little to no money left in it. This is an estate owned by 4 people and they want cash. 

Simply bring in a JV partner, setup an LLP and the partner brings in the cash for the equity you need to get the loan. Talk to Patricia Simon at Zeus Lending in Houston and she can give you assistance on more creative ways to structure your financing.

And join the RICH Club and come meet other like-minded investors!

Thanks. I’m closing at the end of October. Paying all cash $265k. I project 25-30k in quick renovations to make house and both apartments rent ready. Auto shops just need a deep cleaning. Once all 5 spaces are rented for an estimated $6000/mo total I want to refinance at a projected cap rate of 9%. That should put me way over what I have into it. I just need to find the right local lender willing to do that.

Be absolutely sure you do a Phase 1 environmental survey!  Auto shops are notorious for disposing of stuff on site so if you ever sell the property and don't have a clean Phase 1 you can be held liable for ever!