Commercial Loan for Office Space Rental
What are the best financing options for my commercial office space? The owner-financed note I used to purchase the property will come due within 6 months. I could make the balloon payment for the remaining 30% of the purchase price to own the property 100%. But I'd rather refinance for tax advantages and pull out money to invest in other properties. This is my first commercial property, so I'm learning as I go. My goal is to benefit from the snowball effect, but don't know how to get the (snow)ball rolling!
Based on my research, it seems my options are a bit limited:
- I can't do an SBA loan. The property is currently used as an investment for rental RE.
- Many larger lenders require a min. loan amount of $500k. I estimate the property's appraisal value would be ~$400k to ~$600k. Assuming I get an appraisal at the higher end, that would be roughly 75% LTV for a loan of $500k. This would turn my little cash cow into a piggy bank that treads water while giving me access to new funds for another investment.
- I've thought about pursuing a portfolio loan by finding a second commercial property and using my equity in my office building to purchase the new property. Which type of lender would be best for this?
- I tried using a mortgage broker when I purchased the property, but he disappeared a week or two before closing, so I'm a little gun-shy about this option.
- Are there any other reasonable options in which the loan's interest rate would be less than 8%?
I appreciate your suggestions or recommendations!
#1 All Forums Contributor
- Investor
- Virginia
@Paul Andrews
Look at some local lenders. Getting below 8% is going to be extremely difficult and for office we have seen lenders not even touch them and if they do not going above 50% LTV. If it's not collecting rent / have a long term lease it will be more difficult.
If you go private your rate will be 1.5-2x what your looking for.
I was a commercial banker for a very long time and I've been a lender for 32 years. I've been a broker and I've worked in small and big banks. I good commercial broker that knows their stuff can do it, but it's specialized. Not every broker...even good ones...know what they're doing. That being said, I would look at a small community bank. Normally, banks have smaller real estate investors as they are programmed to think we're unwashed scam artists (yes, I was programmed to believe this at one time...not I'm one of those dirty hippies). A community bank typically has local loan authority. They will require your entire banking relationship, but they can usually get a deal done if anyone can. Steer clear of the big national banks. They tend to be order takers on smaller deals. Good luck to you!
Paul - I would recommend the local guys in the area of the property. Sometimes, their charters even restrain them from deploying more stringent terms, that being said there are some wholesale companies out there that im aware of that would entertain this deal. Rates wont be sexy, but its an option. Send me a PM if you'd like to connect.
I appreciate the responses! You confirm my suspicion that local community banks are likely the best option and now is not an ideal time for seeking this type of funding in general. I'll kick some tires and see what's available. It might end up with the need to kick rocks instead and be content with owning the property 100% for some time before the macro situation improves. Thanks again!
Hey Paul,
There are lenders that can do office space with limited income documentation. But the rate is going to be in the high 9s to double digits, depending on the LTV.
@Paul Andrews, did you resolve this issue? I am here to help!
