100% commercial financing?

22 Replies

I am hearing that others are getting 100% financing on new purchases, sometimes based on appraisal, not purchase price. Locally, I've called every bank in a 50 mile radius, and everyone has the same answer... 60-80% (depending on the bank), based on purchase price or appraisal, whichever is lower. I just got a contract on some apt building where the properties themselves are clearly worth more than I'm paying for them. If you look at it from a income standpoint, they are worth a LOT more. But I still have to put down 20% based on purchase price. Now I know I would never get an appraisal higher than a purchase price, that's just how it is around here. But I do not want to keep having to put down 20%! Any suggestions with the commercial bank loans?

100% financing is only going to come from private money, and should only occur if the LTV is 50-60% or lower. Otherwise, buyers need to have skin in the game.

Amd they lie! I've done 100% many tmes, with private lending, I had many deals with no money in it, but it takes alot of foundation building to do that. You'll get laughed out of the bank......

100% financing in the CRE arena is usually the stuff of scammers who prey on the desperate and inexperienced. On the debt side of the coin anyway.

When combined with a seller second, HUD can provide the highest conventional debt leverage, but even, it isn't 100% financing. Not to mention, those loans are for larger projects/loan amounts with experienced borrowers who have deep pockets.

You already have a grasp of what most banks are offering so no need to rehash those numbers.

As LOC stated, you can sometimes find a private investor to provide the needed funds for a higher return or a good chunk of equity, or both. I believe in most cases even a private investor would want to see some skin in the game or for you to contribute a service such as property management. Otherwise, why would they need you?

Also, it is worth mentioning that for a lot of CRE deals you will also need to have reserves in addition to the down payment.

As a private, hard money lender, I can tell you that 100% financing in the hard money industry died around 2008. Just as a side note; although I of course do not know the circumstances of your particular purchase, almost all investors believe they are purchasing a property significantly below market. In actuality, the are purchasing a property at market value in the vast majority of cases.

Investors have been successful because either (1) natural price inflation has increased the value of their holdings over time (2) they have repositioned or rehabbed or in some way did something in add value to the property (3) the area they bought in has changed in a positive way lifting all property values in the area. In much fewer cases have investors actually purchased a property significantly below it's "quick sale" value. However, almost all real estate seminars are based on these purchase below market value occurences, and enough have occurred with astounding enough profits to keep the dream alive.

So true Don, buying below market is guru fluff, so a claim can be made that they made money buying it.

The only way to buy below market is to buy a property that wasn't on the market. If Jethro tells you granny wants to seel her house and you make an offer and she accepts it. If the sale meets the definition for market value, it doesn't matter what the price was, you paid market value.

Yup @Bill Gulley , it seems that the more experienced the real estate investor or operator, the more he or she realizes that purchasing below "market value" is by definition very difficult. IMO, what investors should be looking for are properties where a repositioning or near-intermediate future event can significantly affect property value in a positive way. Of course, the buyer must make sure that this future event or repositioning opportunity is not already reflected in the price.

In the new investment area I have begun investing in, class A high rise condos in Phoenix, many investors think they purchased a great deal based on price per square foot. However, a unit on the second floor overlooking the parking lot is not worth the same price as an identical unit on the 12th floor with a view of downtown Phoenix and the mountains. Many miscalculations in this regard come from incorrect comparable adjustments.

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100% Commercial financing is VERY VERY rare right now. most loans are around 60-80% as you stated. There are cerain private investors out there that may JV with you but you're still going to need to put skin in the game-

I haven't seen 100% in years and years. Be wary of lenders promising this as they will lighten your wallet with junk fees and false promises.

If you go the traditional route and use a bank expect to put down between 20-35 percent. Some of my local lenders won't even lend on commercial projects.

Robert, the only CRE with the loan being insured by a bond is SBA, there is no PMI in commercial financing.

You may get an 80/10/10, 80% at the bank, 10% seller and 10% down or 75/15/10, more like it.

Bigger deals can be financed differently with heavy hitters in a project, but the smaller multis the lender will want skin in the game.

That's why lenders want at least 20% in the deal, in case you screw it up. :)

Originally posted by @Bryan H. :

That's why banks don't want to lend to you. No skin in the game.

Hahah. Touche`

If I am buying a $1MM retail NNN property and I put 10% down then from my point of view that's skin in the game. I thought these small loans were full recourse anyway?

It's not like I am a complete noob. I've been doing residential leasing for more than a decade. I have plenty of income and other assets too.

@Bill Gulley I guess I am just going to have to find the right seller that will take a second.

Probably, if you are looking for that kind of split, 80/10/10, that may fly up to about 250K, maybe 300K with strong properties, when the borrower has limited assets and really relies on the subject property.
As I said "heavy hitters" above, that's one who asks for a loan but can show they don't need a loan.

The best thing to look for with personal "limitations" would be seller financing. :)

Yes, there is 100% Commercial loan but it is only in Canada.

Http://www.themortgagestoreonline.com.

The only reason 100% financing has become very seldom is because too many
People default on their loan and screwed people like me.

Now Lending Companies and Private Lenders will require Skin in the Game but
Will not guarantee funding.

I had clients pay a Down Payment and Underwriting fee and NEVER received funding.

@Paul Klanecky :

Grapes with a smug thumbs-up and a banner reading "100% mortgage financing" gets you in the door, but don't plan on walking out with one of those mortgages :)

I see they are still/again advertising 100% financing on personal homes - a practice the Feds supposedly brought to an end in the past two years.

Originally posted by @Bill Gulley :

Robert, the only CRE with the loan being insured by a bond is SBA, there is no PMI in commercial financing.

You may get an 80/10/10, 80% at the bank, 10% seller and 10% down or 75/15/10, more like it.

Bigger deals can be financed differently with heavy hitters in a project, but the smaller multis the lender will want skin in the game.

That's why lenders want at least 20% in the deal, in case you screw it up. :)

 Bill, where do I go to inquire about the 80/10/10 loan? I have a great building and a seller who would be open to this option. 

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