Commercial 0 Down..

Commercial Real Estate Investing
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Commercial 0 Down..

Sarah Jones
los angeles, CA · Member since 2009 · 223 posts · 4 votes

So far I have been dealing with a lot of residential stuff... I would like to start getting into commercial as well..

Is it possible in this current market to purchase commercial real estate with $0 down... maybe creative financing? How hard is it? Can I buy a 50 unit apartment building with $0 down or $5k?

Any books you would recommend for something that works in this economy... $0 or little down to buy large commercial properties such as apartments..

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Ken Latchers
Hatfield, PA · Member since 2012 · 1k+ posts · 629 votes
14y
Originally posted by Brian Barrett:

Loan officer said underwriting most likely would not even look at the deal unless we had 25% skin in the game

I laughed and told them that if I had all that I would not need them and walked out the door. Might be looking for a place to put our savings and checking accounts tomorrow.

I don't see your point, because that is what every lender is going to do

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  • Ken Latchers
    Hatfield, PA · Member since 2012 · 1k+ posts · 629 votes
    14y

    By commercial real estate, are you talking 5+ unit MFH or something like store fronts?

    I honestly think that regardless of what people tell you, that only an idiot or newbie would consider financing you on anything like this.

    No bank or mortgage company would. No self-respecting owner financing would.

    Maybe if you overpay for the building or pay horrific rates, but even high interest rates/HML want skin in the game.

    Be wary of books promising little down, they often use methods that no one will accept.

    1Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    14y

    Sarah,

    100% commercial loans went away years ago.Even then you needed tens of thousands at least in closing fees.

    There are still hard money loan at a low enough LTV but you will need money and closing costs.

    So the short answer is don't get suckered into someone promising 100% financing and separating you from the only 5k you have.

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    NNN Invest53 Reviews
    WebsiteView Page
    0Reply
  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    14y

    Sarah Jones,

    How many single family no money down deals have you done?

    0Reply
  • Dale Osborn
    Mobile Home Investor · Spanaway, WA · Member since 2008 · 1k+ posts · 578 votes
    14y

    You can read the books by Robert G Allen on "Nothing Down" written in the 80's or "Nothing Down in the 90's" or "Nothing Down in the 2000's". When you do your first commercial zero down deal - please feel free to post so all can learn this technique. Also you can let us know if anything in any of the above mentioned books are acceptable in today's markets.

    1Reply
  • Nikko Lawson
    Landlord · Huntington Beach, CA · Member since 2012 · 23 posts · 5 votes
    14y

    What about doing a lease-to-own kind of option? I've seen a couple mobile home park deals go down like this.

    1Reply
  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    14y

    "Master lease option", that's usually called in the commercial space. A master lease gives you possession of something. That would include the right to sublease the individual units. The option gives you the right to buy.

    1Reply
  • Brian Barrett
    Property Manager · Asheville, NC · Member since 2011 · 8 posts · 4 votes
    14y

    I just spoke with TD Bank today, which by the way is where our construction company and my brothers landscaping company have been banking for years, about a commercial property here WNC.

    We wanted to purchase warehouse at $125K, do $300K in upfit, sell four condos to pay off note and retain first floor commercial space for lease.

    Loan officer said underwriting most likely would not even look at the deal unless we had 25% skin in the game, 5.25%-5.75%int for seven years on a 15yr max amortization. They also said we would have to show enough cash flow to carry the loan with a two year history.

    I laughed and told them that if I had all that I would not need them and walked out the door. Might be looking for a place to put our savings and checking accounts tomorrow.

    0Reply
  • Ken Latchers
    Hatfield, PA · Member since 2012 · 1k+ posts · 629 votes
    14y
    Originally posted by Brian Barrett:

    Loan officer said underwriting most likely would not even look at the deal unless we had 25% skin in the game

    I laughed and told them that if I had all that I would not need them and walked out the door. Might be looking for a place to put our savings and checking accounts tomorrow.

    I don't see your point, because that is what every lender is going to do

    3Reply
  • Sarah Jones
    OP
    los angeles, CA · Member since 2009 · 223 posts · 4 votes
    14y

    I want to invest in apartments... not really offices or warehouse... i have about 70k i can use if i really need to.. any smart way to invest in apartment with this much down.. im in los angeles

    0Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    14y

    The no money down is a pipe dream.Even if you found a seller to hand over to you a property it is not going to be cash flowing like a monster or else they wouldn't be financing you.

    There will be closing costs and there will be immediate repairs and loss of current income with the property.So even no money down you will substantially eat into that 70k.

    The real question is are you going to try to live off of the investment the 70k buys or do you have a great job or business that already pays to sustain you??

    Brian,

    I am surprised that you are surprised that TD bank is conservative.The banks do not want risk period.They have too much of that crap on the books already unless they are a brand new bank and they STILL will not want risk.

    You would need a capital partner instead on a deal like that.You wouldn't like the terms or percentages for them to take on that kind of risk if they would even touch it at all.

    With these kinds of properties the investor buyers see huge upside if they can get it to work.The private lenders,banks,and sellers owner financing see instead huge risk if you fail.

    You are looking at the gain and they are looking at the loss.

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    NNN Invest53 Reviews
    WebsiteView Page
    2Reply
  • Adam Johnson
    Rental Property Investor · Holley, NY · Member since 2011 · 507 posts · 347 votes
    14y

    Like everything, this is a numbers game. I am going to take an opposing viewpoint to most of the other responses. I think no money down is possible ANYWHERE buying ANYTHING. First thing to do is listen, second thing to do is ask. By that I mean that you have to listen to what is important to the seller, then you have to put that into a solution that could work for them as well as you, and then ask for it.

    I recently purchased a 5-unit that was fully vacant with a mortgage that was going bad. I negotiated with the lender to assume the mortgage (the mortgage was supposedly not assumable!) with my contribution being that I would fix the property, get tenants in there, and make it perform again. Now, this is not what I would necessarily consider no money down, since I had to pay for repairs out of pocket. However, the repair money came by way of use of existing lines of credit, so effectively, it ended up being no money down. I did not bring any money to close the deal.

    It is VERY important to first see if the purchase makes sense. In my case, the ARV was around $ 100,000, I assumed a $ 57,000 mortgage, and spent around $ 10,000 in repairs. The rental income has paid the lines of credit back down due to high cash flow, and I continue to pay the mortgage. I am currently talking to lenders about a secured line of credit leveraging my equity on this property so that I can do more deals like this.

    I started RE investing with no money, so I am a big fan of no money down because for a very long time, that was all I had. I would NEVER use this strategy for a full value purchase!!!!!! I use this only when I see equity to be gained very quickly. Essentially, instead of putting money down, I am using that equity for my down payment and backing into the deal.

    Most lenders look at me like I have 3 heads, but that's ok. When I bring one of these deals to them after a year and they see how much equity/cash flow these deals are throwing off, they are buying me lunch to learn more. This strategy sometimes takes a couple steps in order to place the financing with a traditional lender (such as hard money, then fix/stabilize, then take it to the lender to refi), but when you put no money down, the return on your investment is "infinite". I like that a lot!

    Adam

    1Reply
  • Darryl Dahlen
    Commercial Loan Officer · Southern Maine, ME · Member since 2009 · 782 posts · 415 votes
    14y

    Short of the rare situations that Brian describes there is no such thing as no money down when dealing with CRE.

    Granted, there are times where a person can enter into a deal with no money of their own, but those are almost always situations where that person has a critical skill (management, contractor, etc.) and have financial partners who are kicking in the needed capital.

    Oh, and to add to what Joel said regarding TD Bank. I too don't see anything wrong with their offer to you Brian. I don't think you'd find much better anywhere else, and while TD Bank is somewhat conservative, they've weathered the economic storm we're in very well by being just that.

    0Reply
  • Jeff Nelson
    Naperville, IL · Member since 2012 · 1 post · 0 votes
    14y

    Unfortunately there is no free lunch.

    Minimum is 10% down on certain property types. 25-30% is really industry standard.
    Hard money is 35-50%.

    0Reply
  • Karen MargraveBusiness Member
    Moderator
    Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes
    14y

    Sarah Jones You're not going to find anything in Los Angeles that you can get into. As one of the posters above mentioned, there's no such thing as zero down, you always have to have something of value to contribute to a deal, cash, services, collateral, something.

    With $70,000 you might be able to find a duplex or a fourplex, but the area would be very rough. Maybe you should try for a SFR, or possibly a condo in a nice area; and work your way up, or find someone else to partner with that has the same goal of getting into commercial.

    Whatever you do, KNOW the market where you are investing. Los Angeles has some great areas, and some that you can't give away property, and there's often a fine line between them.

    0Reply
  • Ed Poltonowicz
    Real Estate Investor · Langhorne, PA · Member since 2012 · 22 posts · 5 votes
    14y

    I am currently doing a deal where I pledge equity in a building that I own instead of putting money down. I am walking into a $750k property and will only need about 20K of my own at settlement. Not exactly no money down since I am pledging equity but it is no money down to me.

    For the same property I had another lender lined up who was going to loan me 70% with the seller holding 20% if I put 10% skin in the game.

    Low to no down payment is possible with a little creativity.

    0Reply
  • Karen MargraveBusiness Member
    Moderator
    Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes
    14y

    Ed Poltonowicz As I mentioned in my post "there's no such thing as zero down, you always have to have something of value to contribute to a deal, cash, services, collateral, something"

    On your deal you cross collateralized a property to satisfy the down payment, therefore; you do have skin in the game. Should you not perform, your other property would be sold for the amount owed.

    Your point on creativity is right, and with experience people learn to think outside the box. Your example, as well as many others on BP, give good examples of doing that. In fact, a while back I posted a thread asking about the most creative deal people had done or something like that, and there were some great answers.

    0Reply
  • George Gray
    Investor · Birmingham, AL · Member since 2010 · 72 posts · 21 votes
    14y

    Joel Owens "The no money down is a pipe dream". It's great when people tell it like it is! I have often wondered how you pay pro rata taxes, insurance, repairs, marketing, etc. when you don't have any money, even if you can get 100% financing. Maybe the guru's course has a closing cost jeanie in the back of it?

    0Reply
  • Ed Poltonowicz
    Real Estate Investor · Langhorne, PA · Member since 2012 · 22 posts · 5 votes
    14y

    I did another deal, 12 years ago, that actually was no money down, but it was unusual. I had been renting 4000 sq ft of commercial space from a landlord for 15 years. He decided he wanted to sell the 4 unit building and I was the perfect buyer. Except, I had no money for a down payment.

    The seller wanted to hold paper so he did not get hit with all the capital gains in one year. Since he knew my reputation for always paying on time for the past 15 years, he agreed to $175k, zero down, 6.5% for 10 years. In return I agreed that I would repaint the building and do some neglected maintenance over the next two years, increasing the value of the building. Basically I promised to put in some sweat equity after the purchase.

    He benefited by not needing to do the repairs before putting it on he market (about 10k) and not having to pay a realtor (8k). All it cost me at settlement was transfer taxes and title insurance.

    Of course the only reason this worked was because I was his tenant for 15 years and he knew I was worth the risk.

    1Reply
  • Ed Poltonowicz
    Real Estate Investor · Langhorne, PA · Member since 2012 · 22 posts · 5 votes
    14y

    Okay, no one liked that one, so here is another no-money-down deal I did:

    This was 8 years ago. The seller wanted 250k for a 6 unit building. I offered him 265k if he would hold 75%, 6.5%, 20 years. He was fine because he did not want to get hit with cap gains tax, he wanted the money for retirement, so my payments became his annuity.

    I did not have the 25% down that he wanted, so I made a proposal to a guy I golf with: I would give him 9.5% on $65k, 5/15, second position. It was a ridiculously high interest rate but the numbers on the building still gave me positive cash flow with 100% financing. He was thrilled with the deal.

    That building is now worth $500k and has had positive cash flow every year since.

    0Reply
  • Steve Craig
    Sterling, VA · Member since 2012 · 4 posts · 0 votes
    14y

    If you want "Low Down" financing on Commercial property. Stop looking for the property and start looking for Sellers. Lot's of Mom & Pop commercial property owners will consider financing a Buyer with a good plan to pay them. The reason... THEY KNOW THAT FEW BANKS ARE LENDING TOO! Notice I said you have to have a good plan to pay them. Work on your projections and list of improvements in advance. I use a cool little app called Real Estate Deal or No Deal Calculator to do quick calculations and "what if" scenarios. Before I sit down with the Seller. Last year I added $1/2M to my portfolio by; showing a strong credit report, laying out a plan for improvements and building useage and letting the Sellers know that banks aren't lending on commercial right now. I recommend Retail & Office over apartments (in commercial, apartments are hot right now). Ask for deferred payments while you get the property up and running. Explain that the building needs the money more than the Seller does. You probably won't be able to pick the building you want but with a motivated Seller and proper planning and projections you too may wind up owning a nice commercial property you never knew you wanted.

    0Reply
  • Paul Klanecky
    Real Estate Investor · Las Vegas, NV · Member since 2008 · 3 posts · 2 votes
    13y

    Yes, there is 100% Commercial Financing with Zero Down but they will only Finance
    In Canada.

    Http://www.themortgagestoreonline.com. All because US investors default on their loans.

    Now Companies like to Screw people. I mean Skin in the game. Pay a % down, Underwriting fee and then the Applicant does not receive funding.

    0Reply
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