@Michael Mudrey Since this is a commercial investment, on average, you will be expected to have a 20% down payment.
To make up the 5-10% difference, you can try to get owner financing. E.g. your down payment = 15%, owner carries a note = 10% and financing = 75%. An alternative would be to work with the owner and have them carry the entire note (they act as a bank). In this scenario, your down payment = 15%, owner financing = 85%.
You have to educate the owners around tax savings (if they sell, they will have to pay capital gains tax) and sustainability of cash flows backed by a hard asset that they are familiar with, among other things.
If you decide to go down this route, please, keep in mind to structure the deal to ensure that the #s still work. Often times, investors tweak the #s to make the deal barely function (on paper) and do not leave any margin of error.
@Omar Khan thank you; will this work with hard money lenders as well?
@Aron Siva Depending on how the deal is structured and on the conditions of the lender, this can work with any lender. At the end of the day a couple of things come into play:
- What is the state of their business? For e.g. with smaller/regional players, if they've filled up their "book", they have no incentive to give better terms. Alternatively, if they have a lot of liquidity (deposits or capital) that they have not loaned out, you might be in a position to get better terms.
- What is the lender's outlook on the market/deal? Honestly, if a lender is gung-ho about a market/deal, they are more willing to work with you. This is especially if you either have an existing relationship or they can see you will provide them long-term, sustainable business i.e. you're not a one-and-done investor.
- How much leeway does the loan officer have and how are they compensated? Nobody likes to talk about this but if a loan officer has "flexibility", can extend himself and just "needs" to loan out another million $ to hit his performance target, you will find a more receptive loan officer. This doesn't mean everyone will do this. All I'm saying is you might have a more receptive loan officer on one transaction and on a similar transaction a few months from now, they might not be as enthusiastic.
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