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Standard commercial lending terms

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4 posts by 2 users

Charles W.

Real Estate Investor from Ellicott City, Maryland

Jun 28 '11, 12:36 AM


Hi all,

I've been trying to do my research into commercial lending terms. Based on all the threads on LLC vs operating in my own name I have decided it is probably best to operate under an LLC. Since as an LLC I cannot use conventional funding I've been speaking to local banks about commercial loans for doing my acquisition and rehabs.

I have spoken with several local banks who do renovation loans and have been a bit surprised by their terms.

The terms from both local banks have been a 5 year loan, 20 year amortization with a maximum loan of either 65% ARV or purchase price + rehab whichever is lower.

Are these terms consistent with what others have found? I am looking at loans between 40-60k. I was expecting I'd be able to get closer to 80% LTV on the ARV.

If these terms are pretty standard, how do those of you operating under LLC's fund your deals if not with commercial loans?

I should also mention I'd like to primarily buy and hold only using fix and flip to generate my down payments for more buy and hold.


Edited Jun 28 2011, 00:43 by Charles W.


Chris Martin

Real Estate Investor from N Topsail Beach, North Carolina

Jun 28 '11, 08:25 PM


These terms are not uncommon. You didn't say the rate, but I'd expect 6% to 6.5%. Compare that with hard money. Regarding "If these terms are pretty standard, how do those of you operating under LLC's fund your deals if not with commercial loans?" Two answers: capital contributions from members and (once you are established) existing operating accounts. Established LLCs will use commercial lenders, though, and some lenders will have more favorable terms when you have a track record with them and tangible assets/cash flow.



Charles W.

Real Estate Investor from Ellicott City, Maryland

Jun 28 '11, 09:05 PM


Thanks for the reply Chris. These terms are pretty unfavorable for long term buy and hold. It sounds like the best alternative for an LLC is private contributions.



Chris Martin

Real Estate Investor from N Topsail Beach, North Carolina

Jun 28 '11, 10:01 PM


For intermediate and long term holds the trick, IMO, is buy with cash, fix, secure tenant(s)... then talk to your established commercial lender. This method removes much of the property risk and establishes a de facto debt load ceiling. Keep the collective portfolio's Debt-Service Coverage Ratio as high as possible and they probably won't care about seasoning or what your basis is. Just my two cents.



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