Question for commercial lenders/brokers

10 Replies

Hey there, Right now I have about 50k in equity on my rental. I am trying to save up another 50k within a year or so. I would like to sell my property and put 100k down on my first apartment building for around 1,000,000. My question is is this a realistic goal? It looks like many commercial loans require 20 percent down, but I have seen some for 10 percent. Any advice or things to think about would be greatly appreciated. Thanks!

Hello Travis, if the apartment complex is more than 4 units and this is your first commercial property with no other commercial properties to collateralize the loan, then you will most likely need 20% down. Realistically, most commercial banks will actually want 25% to 30% down for someone buying commercial property for their first time.

Travis,

I'm going to second what David said. You will very likely have to come up with 20%.

My two cents here would be that since you have about a year before you make that move, then you should start focusing on building relationships with potential sellers in your area and start conversations about maybe getting some seller finance for the remaining 10%.

There are many other creative strategies for you to get into a $1MM deal having only $100K. Check out Brandon Turner's book on Investing With Low and No MoNey Down.

@Travis Salley Don't over-leverage yourself.  I agree with David, shoot for 25-30% down.  Be ready for closing costs, legal fees, lender fees, liquidity requirements, reserve requirements, etc.

You can explore the idea of investing with partners and raising capital from family/friends.

Commercial Loans can get expensive.  Sometimes two 4-units under residential loans are better than one 8-unit with a commercial loan.

@Travis Salley Apart from the great advice given by @David Friedman , @Lennon Lee and @Andrew Beauchemin , I would also like to add that unlike residential loans you terms will be significantly less. 

As a first time apartment buyer, you might get anywhere between 3-7 years at the end of which you will either have to refinance or pay a balloon payment. The last part kills a lot of investors as they either no do not anticipate it or do not realize how hard it is to refinance (esp. if the market is going against you). 

Would suggest having a 25-30% set aside apart from a business plan describing how you plan on improving/running the property. That will give you additional credibility with lenders.

Thank you everyone! Good information for Travis. It's not all hopeless. Once you establish yourself with a commercial lender, they will start to give you better and better terms on lending. It's actually very important to choose a "Relationship" Commercial Bank that is willing to work with you, even on wonky deals. Sometimes the weird or distressed deals make the most money.

I would like to say that commercial loans are not more difficult to finance.  They take the same amount of paperwork.  If you have a balloon coming or you need to refi them you will know this way ahead of time and be able to shop your loan amount early and get the best deal.  

Im curious why 1,000,000 is coming up for you? Follow a path. Can you get something smaller, say a live in 4 plex with a residential loan off of the capital that you have now? This might help you better begin to figure out the mult world and give you some experience as well as capital moving forward.  Then 

@Travis Salley know that the fishing that you are doing, is a COMPETITIVE MARKET!!  There are a ton of investors out there that do this, have been doing this and will know how to do this better than you can.  Right now, I think many markets are crazy competative. Here in Vancouver,  multis might be on the market for 2 weeks if that. Most are gone before they are ever listed and I woud not in any way say they are deals.  To that end, partner. BP is a great resource with a ton of super smart folks.  Get a mentor, do the grunt work, offer yourself up to learn what they know so that then you can do what they do.

Best of luck  

All the best!

Paige

Ask investors that already own apartment complexes that question. Talk to as many as you can. Find out who their lender is.

Swanny