Financing options for optimal cash flow!

10 Replies

I’m just starting out in commercial real estate, so the banks (community banks) are giving me standard rates. (5% interest, 20 year amortization, 5 year balloon payment, with 20-50% down). With these rates I’m having trouble finding cash flowing properties! I’ve heard about owner financing, HUD loans, and SBA loans. I’m not sure which is the best option for me. What would you guys suggest? Thanks wishing you all the best!

Commercial loans suck. I couldn't get out of my 3 fast enough.

Seller financing done right is the only way I do it anymore.  Be a SF master!

Renting money always comes at a cost and if you get too creative it may bite you later. The real culprit IMO is the price of the property in the first place. The market for apartments and commercial has soared, sellers taking advantage, and we probably would too if only the shoe were on the other foot!

@Paul Sammons welcome to Commercial lending. 

Im experiencing the same in Arkansas, Banks are not so hungry this time of the cycle. 

You need to keep talking to local banks. they all quote the 20 years and 5 years balloon. 

But with some negotiation you maybe able to get higher Amortization and better rates. im not sure about the balloon, some that previously were offering  7-10 years now talking 5 year. because interest rates are going up. 

I see rates in the mid 5%, like 5.5%-5.7% But im underwriting at 6%. 

At the end of the day it all comes down to relationships, if you had long lasting relationship and good track record you can negotiate more. 

You didn't mention your price range, but if you are over $1mil in debt you can go Freddie Small Balance Loan which typically offer 30 Years amortization and 10 years fix rate. 

so you can buy with local bank, add-value and then refinance. 

If you are buying small MFR 2-4 units, then go conventional loans. 30 years fixed.

I hope that helps.

I will 2nd @Hadar Orkibi 's comment; you should vary your lending sources.  For a long term buy & hold on a stabilized property, banks have a tough time competing with Agency debt.  I received a quote on a multifamily property today at 5/7/10 years, 30 year am, 5.75 - 6%. (that treasury keeps climbing!!)

This is for commercial, 5+ units, $1M+

If you can't cash flow well at 5%, 20 year amortization at 20-25% down, then the issue is not the financing terms, but the deals that you are looking at buying. 

@Paul Sammons In addition to continuing calling the banks, for your first deal you can partner up with someone experienced who is qualified for better terms. 

Also, try calling Arbor Realty Trust - they national lender company. 

Good luck!

Because of this post, a mortgage broker from easternunion.com reached out to me. Thanks BiggerPockets!
He may have set us up real nice with a Fannie May small business loan. 30 year amortization 5.27% interest and 10 year balloon. It’s non-recourse as well. Still waiting to hear back from the lender. If this goes through we’ll be set. 🤞 it’s probably going to put us past out closing date though. Not sure if the sellers will be ok with that. Though it’s mostly their fault for delaying on getting us all the financials on the property.
Anyone have any advice or suggestions moving forward with the agency or brokerage company?

Thanks