Commercial loan that exceeds net worth

27 Replies


This is my first post on this forum and was looking for advice from fellow investors/developers.

A little background on me. I am 20 years old and have been in real estate for about 5 years now. When I started I bought a cheap single family house after the market crash and fixed it up to rent out. Then I refinanced it to do another and rent that one out. I acquired 6 single family properties from doing this. Last year since the market went up I decided to sell off 4 of them and start in my first house development. The house is just about finished and getting lots of action on the market. I believe developing is my passion.

Now for my question I was looking for help/advice on. I want to develop apartment complexes to have cash flow. There is this piece of land in a good area that I could build six 8 units on. I was wondering if it was possible to put 20% down on land build the first 8 unit with cash then refi it to build another and keep that domino effect going to build the rest. Does anyone have experience with this? Or is there a better idea to finance this?

I have high credit, good income, but not enough net worth to acquire a loan the size to build all six 8 units at once. My net worth is about $650K.

Thank you spending your time to read my post!

@Noah Zelko Welcome to BP. So you are 20 years old. Real estate for 5 years. Bought and flipped houses. Sold several at the peak and you have accumulated enough cash to put down on land and enough to develop the first of several 8 unit MF!  Oh yeah great credit and NW of 650k. And you want some guidance from us? Wow I am speechless and can't wait for the thread to get going!

@Bjorn Ahlblad Thank you very much for saying these nice things! Honestly I just want to learn as much as I can. There’s no better way of learning than asking others who have experience. Thanks again! Really means a lot!


Do you have a good relationship with a local bank in your area? I would start there with regard to the loan. If not possible, then maybe a joint venture with someone who has the credit to secure the loan parameters 

On the other hand, congratulations fir doing what your doing at a young age, wish I had done the same, but it’s all good!

@Kim Meredith Hampton Thank you for the advice! I do have a good relationship with the local credit union. My realtor thinks I should go in and talk with them as well. I just didn’t know if anyone else has had experience with something like this on the forums. I would prefer to get the loan to build all the units at the same time. But I’ve read online one of the main things they look at is net worth equal to loan amount. Is this true? Or is there ways around that? If I can’t secure the entire loan I wonder if I can refi each building as I build to pull out my cash to build another?

@Noah Zelko Noah glad you are getting for this thread: net worth must be equal to loan amount.............and there is an article written by @Matt Faircloth who posts on here and is in the know when it comes to commercial financing. All the best! Let us know how you are making out.

@Bjorn Ahlblad Thank you very much! I will go check the forum now. Will keep you updated on what happens.

@Noah Zelko the net worth requirement is usually mentioned in the context of agency debt (Fannie/Freddy). Your local/regional banks will be more flexible and will value your prior experience and the business you bring to the bank. 

I'd be curious to hear about your projections of your buildings? What do you think you'll have in each building, what rents are you expecting, and what is the cap rate on a new apartment building in your area? 

Wow @Noah Zelko let me start by saying I am extremely impressed!! The fact that you are 20 years old and have obtained multiple multi unit properties is amazing. I haven’t heard many stories of younger investors in the game. I can only imagine where I would be in life if I had learned about real estate investing at a young age. It seems you are projected to be a millionaire at at least 22 and that is extravagant. I am writing this post to tell you continue to do great!! I am a year in RE investing and still grinding hard everyday to get where you are! Keep it up @Noah Zelko
@Joseph Gozlan This is great to know. Thank you! I have a credit union I’ve worked with the past 4 years. I will go in and talk to them. Thanks again!
@Derek Rice thanks for the curiosity! I have the numbers at home but right now on the road. Will send you idea of numbers when I get back.
@Raleigh Lewis This really means a lot to me! I owe a lot of credit to my parents and how they raised me to be. I’m sure I’ll have bumps on my journey through this like everyone does. But know I can get through by learning. Real estate has been a great investment for me. Good luck in your real estate endeavors as well! Reach out to me at any point if you want to discuss different ideas. Would like to help as much as I can as well.
You can find an equity investor who can guaranty the loan. To do this you may have to give them a higher return for the additional risk of the guaranty. I did this recently on a development project and had to give the investor an additional 10% of the ownership in the LLC which translates into more of the cash flow for them but myself and business partner were able to get a loan that far exceeded our net worths and we were able to get the guaranty to burn down to 25% as we hit certain rental income thresholds.
@Noah Zelko please tell me how your parents raised you so I can emulate with my little munchkins! Congratulations on such accomplishments at your age, you will be a filthy rich man at some point if you continue at this pace. As for your loan, you certainly need to sit down with the credit union you have a relationship with before anything else.
Why not tie up the land with a lease option that allows you to build and then get a loan after you've got your first complex up?
@Noah Zelko whatever you do you will succeed. It's you who supposed to teach us :-). Sorry can't help on your particular question, as I was buying with cash the land and then financing the structure.
@James Bakker Thank you for the idea! I would really prefer not to partner on this opportunity just because I’ve heard of partner horror stories. Maybe down the road when I have more experience as a commercial developer. Thanks!
@Bobby Stener Thank you so much for the kind words! I’m very blessed to have my parents. They’ve always been very selfless for my siblings and I. I hope to have a successful future and teach others what I learn on my road to it. I just sent an email to my credit unions loan officer. Will keep you updated. Thank you!
@Clinton Fisher Exactly what I’m thinking. I just didn’t know if it’s ok with banks to do it that way and if anyone’s had experience with it.
@Kate J. Thank you so much for saying that! I’m no pro but hope I can teach others as I learn. I hope I can succeed with this particular idea. Was your project commercial? If so did you need to have equal net worth to the loan amount?
Originally posted by @Noah Zelko :
@Kate J. Thank you so much for saying that! I’m no pro but hope I can teach others as I learn. I hope I can succeed with this particular idea. Was your project commercial? If so did you need to have equal net worth to the loan amount?

 The land was subdivided in two lots and we build 2 sfh. I dont think they need it, but the bank did ask about all income and net. However my net was higher, so I am not sure if it played a role.

@Kate J. This is very good to know. I will see tomorrow what they look at when I get the email back. Thank you again!
@Noah Zelko do you have banker now? I know of a trick that may help , message me and we can discuss.
@Derek Blades I do have a relationship with a local credit union. Awesome! Adding you right now.

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