Financing 5+ units deal for first real estate deal

6 Replies

Is it possible (relatively easy?) to get a commercial real estate loan for a 5-8 unit apartment complex as a first time real estate investor? I've been interested in real estate for a few years now but due to graduate school I haven't been able to commit. I doubt I'll be closing any deals in 2018 but am hoping that by the start of 2019 I'll be in a position to actually pursue a real estate deal seriously.

I will be debt free, earning around 100k/year, have a credit score of 760, and should be able to supply a 20% down payment for properties I'd be interested in. Is my lack of real estate investment experience a huge barrier for me obtaining a traditional commercial bank loan for a 5-8 unit commercial property?

I'm a big time newbie but this is something I definitely want to pursue and am willing to listen to any and all advice! Also, if anyone has any resources they think I could really benefit from reading/watching/listening then please let me know.

Appreciate the help!

There are a lot of financing options available and having solid credit and income will definitely help. The first step is getting started with lenders and seeing what they can make work for you. Let me know if I can help out any more here! Good luck!

Matthew Teifke

    If you have the 20% D/P and involve the bank in your search process you shouldn't have any issue. The hardest will be getting a bank to take you seriously. Sit down and meet face to face with the lender. Have a discussion about what you're looking for. They may even have a client who has a property they're wanting to sell. When you identify a property of interest, whow them your self-calculated pro-forma. It's not a bad idea to find one that meets your criteria but for one reason or another you're not serious about buying. Send it over to them and get their opinion then "walk away" from the deal to show them you're not impulsive.

    When finding a bank, look for local/regional banks and ask the question "do you finance small multi-family?" "what geography are you willing to work in?" Banks are like individual investors in that they have their own strategy and strengths/weaknesses. If they haven't done a multi-family deal in the past 6months, look for another.

    As a lender, if someone has strong credit, good liquidity, and good outside earned income I would work with them to see if we would be able to help them with a first time RE purchase.  I would want to work with my borrower to ensure that the property they are buying is a good fit as far as their level of experience and skill sets (for example, a property that required a lot of renovation or wasn't stabilized would be a concern for me for an average first time investor) so it would be a good idea to find a lender ahead of time so you can discuss your goals and the types of properties they are comfortable lending on.  

    Thanks for all the input everyone!

    It sounds like getting to know banks on a more personal level and understanding what they are experienced in and comfortable with is a critical aspect. Towards the latter half of next year I'll have to start walking into banks and start inquiring on getting a loan for a investment property. If the property is commercial will I absolutely need to have a LLC in place before I start/get financed? Eventually I plan on starting a LLC so maybe it's just better to get it started early, even before my first property?

    @Matthew E. Welcome, and good luck. As for the LLC, it won't be "required" but it is a pretty good idea to have commercial properties under an entity other than yourself. That said though, California is not a cheap place to form an LLC and keep it going. They have required yearly dues and the startup is pricey if you're not actually doing anything for a while. So maybe just do the looking and learning and when you're ready to move forward, then look at forming the company. Unlike here in MO where it costs $52 to set up the LLC and that's about all the costs (aside from partnership agreement from a lawyer if you need that). If you're interested in out of state investing I live and am on the hunt in StL so feel free to PM me.

    @Donald S. Thanks for the valuable feedback! Wow, $52 to set up a LLC sounds amazing, you're definitely right about California being pricey there is a $800 recurring annual fee which early on can be a real detriment to cash flow. Even with the costs I agree that having the entity under the LLC is a smart move and thus will probably end up forming one once I know I'm ready to dive in. Out of state investing is something I have also considered. A lot of really cool avenues to invest with real estate.

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