Retail units botching my financing (and dreams)

Multi-Family and Apartment Investing
7yFollow

Retail units botching my financing (and dreams)

Arash L.
Member since 2019 · 1 post · 0 votes

Hi all! First time poster looking for some help.  

I am interested in a property that currently has two separate buildings on it; one building consists of two 1bd/1ba apartments (Residential Building), the other building consists of two retail stores on the ground level and one 3bd/1ba apartment on top (Mixed Building).  For some odd reason, the two buildings are on separate parcels.  Since the Mixed Building has this commercial component, my banker suggested that I ask the seller to sell the two parcels to me separately, that way, the Bank can offer me a residential mortgage on the Residential Building (30yr/3.45% fixed).

With respect to the Mixed Building, he said I would have to get a commercial loan.  I am trying to understand my options with respect to this commercial loan.  The typical 30% down, 8% interest, and 10-year term will kill the feasibility of this property.  I am currently looking into SBA options to see if I can owner-occupy the top-floor apartment and run my consulting business from there.  Any other suggestions?  I have enough money for a sizable downpayment (30%), it is mostly the 8% interest and 10-year term (i.e. the high monthly payment) that is problematic.  Asking price for the Mixed Building is around $700k.

Any chance I could get lucky and find a small bank to lend me the money on terms closer to the residential mortgage given my willingness to provide them with a large down-payment? Credit score is 840.

Thank you in advance for all your help!

Arash

0Reply
20 views

Most Popular Reply

Greg Dickerson
Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes
7y

@Arash L. you should definitely talk to some other banks. Several. You should be able to get 4.5-5% on a commercial loan for 20 years. You could look into SBA they will give a longer term

You could ask the owner to finance as well.

1Reply
See this reply in the discussion

4 Replies

Jump to latestLatest
  • Greg Dickerson
    Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes
    7y

    @Arash L. you should definitely talk to some other banks. Several. You should be able to get 4.5-5% on a commercial loan for 20 years. You could look into SBA they will give a longer term

    You could ask the owner to finance as well.

    1Reply
  • Charley C.
    North of Houston · Member since 2018 · 350 posts · 181 votes
    7y

    @Arash L. when I tried to use SBA, at that time (over 10 years ago), I could live in half and then be the owner operator of the second half, lot of government caveats and extra 3rd party closing cost, plus life ins. etc etc. Doesn't seem like this is that scenario..

    You don't need hard money if that deal has good reliable income. Look for the smallest bank with the fewest branches. Find a small bank that likes your area. Most likely you will get a 5 year arm, fully amortized over 20 years may be 5 or 6% with a point or 2. 

    Your loan is not the kind of loan that sells on the secondary market at the lower rates. You have to find a a bank that has a need to add that kind of loan to its portfolio (for regulatory reasons) Now if this bank has too many loans like yours already, its just bad luck, move on to another bank 

    One thing that would also help is if you already had rental property both commercial and residential. Most lenders want to see that you take good care of your rental assets and put your cash flow back in to keeping the property up to speed.

    One last thing, if those properties are on separate lots, separate legal descriptions, you have expanded options and more options that what I just told you 

    0Reply
  • Charley C.
    North of Houston · Member since 2018 · 350 posts · 181 votes
    7y

    The above is the quickest strategy but the most economical might be this:  The residential property can be with a regular Fannie of Freddy loan, just call it a home with a guest house, worst case is they consider it a duplex.. OK that's the easy loan. Your retail parcel is not easy and usually requires an expensive appraisal ($3500). 

    What I would do, is find a small bank where that same loan officer gets to do the conventional loans (conventional loans put zero pressure on their portfolio because they sell them even before you close)  use the profit motive of that loan as leverage to encourage them to get a fully amortized commercial loan. 

    0Reply
  • Spencer Gray
    Syndication Expert and Investor · Indianapolis, IN · Member since 2016 · 591 posts · 808 votes
    7y

    Is retail and mixed use part of your overall strategy? It's a niche and because of the complications that you're discovering a lot of investors won't bother with it and that could present a great opportunity to get some great deals with great basis. 

    On the flip side you should think about the exit and who you are going to eventually sell it to? The same opportunity for a good basis might also mean it may be very hard to sell. If that's then plan for a longer hold and a higher cap rate.

    If this is your niche then go for it, figure out the best way to take these types of deals down which will include finding a financing strategy that works and is repeatable. 

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free