How to get conventional financing for commercial properties

13 Replies

I am in contract to buy a commercial property but I having an hard time finding a lender who would finance because it is bit leased out yet. I am planning to close, renovate and lease it out. Looked into bridge loans but they are very expensive. Any tips?

@Binod G.

Not one area of lending is historically expensive right now. Not Fannie/Freddie, Not DSCR or asset based lending or bridge loans. Interest rates are at an all time low.

Take the bridge loan, renovate the property and then get into a long term financing vehicle.  If it's a multi family property and your credit is good, the floor rates on a 30 year fixed are at 3.5% and for the most part, they're closing in the 4's.  That's crazy low.

It's all math.  If the eventual rents will cash flow, then what's the projected amount of money that has to be spent to get there and what's the time frame where it's a profitable venture?  Once you figure that out, you can make a decision whether it makes sense, but interest rates should not be hindering you; maybe purchase price or renovation cost, but not interest rates.

Stephanie

@Binod G. the bridge rates should be the last thing to complain about. Execute a plan to add value and get into stable money. What good is a low rate if the deal doesn't close?

@Chris Cambridge They are asking for a very high interest rate of 8% plus a 2% origination fee and closing costs. The interest rate with origination fee/closing costs added to the equation (when we need the loan for 6 months) increases the interest rate to an effective rate of 13%. I am looking to find somebody who can provide a better deal.

I've been taking a close look at hard money recently.  12-15% with 3-5 points is pretty common.  Private lenders are running 8.5% plus a point or 2.  So what you are seeing is pretty common. Check out lenders like Lending One and Lima One.  If you google Private Lenders for Commercial Real Estate loans you will get a long list.  Most of them are going to want you to have some skin in the game.  Expect to come up with 25% or so down. And most will take 3 or 4 weeks to close.  My first hard money loan several years ago was 16% plus 3 points.  And it was due in 3 months.  Which of course I missed.  So that cost me another point.  So 8.5 is pretty good.  I'm finding the harder part is refinancing into a term loan.  Best of luck

Originally posted by @Binod G. :

@Chris Cambridge They are asking for a very high interest rate of 8% plus a 2% origination fee and closing costs. The interest rate with origination fee/closing costs added to the equation (when we need the loan for 6 months) increases the interest rate to an effective rate of 13%. I am looking to find somebody who can provide a better deal.

At $500K some people are not even wanting to talk single digits let alone below that 8%. You have to be stellar and go full doc. I'm not saying it's not there but your offer should have less headache.

 

500k is nothing for bridge lenders in commercial. Most you have to beg to take anything under 2 million and some will do 1 million. 500k most pass as it's not worth their time.

8% is cheap. Your expectations might be out of line for what you want to do. Bridge debt just like hard money gives best loans to long time clients with proven track records of success. If someone doesn't have that in the asset class property they are wanting to buy then a big unknown so the lender prices in RISK with underwriting.

History and performance mean something to a lender. 

Family and friends might work but if you do not pull the stabilizing off and success on the back end the collateral damage can be way more far reaching than a business agreement with a regular lender.