Commercial Lending and Partnership Questions

San Diego, California
Creative Real Estate Financing
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Commercial Lending and Partnership Questions

Garrett H.
Julian, CA · Member since 2020 · 24 posts · 7 votes

Hi All,

I appreciate any answers and guidance in advance. A group of us 4 investors are looking to form a partnership to purchase a property for commercial purposes and have a few questions about if we are going about this in the most efficient way.

Property is in San Diego County and consists of about 40 acres. Seller wants $1.75 million total. Seller says they will accept $300,000 down (non-refundable) with lease payments of $4,500/ month (doesn't count towards principal) for 3 years in which we would have to pay the remaining $1.45 million at that point (title stays in seller's name until then and also pays the property taxes). We would then seek to get a commercial loan to pay the remaining amount. The thinking was that the limited lease payments of $4.5k a month would provide some additional time to establish the business revenue.

The business: Short-term rental on two houses (One is turn-key, the other needs a little improvement then can be rented out). Estimated short term rental annual revenue estimated conservatively at $60k/year ish. Pumpkin patch and apple orchards (+ some ag tourism related activities) would be the other initial business pursuits. Estimate pumpkin patch revenue estimated at $100k for first year then by year 3 around $250k. Apple orchard takes much longer to establish and revenue wouldn't be realized until year 5 or longer but can net as much as $100k/acre for U-pick operations (+ cider making, etc).

The problem: Although we are all business owners of our own entities separately, none of us actually have any experience with commercial lending.

The questions: Initially, does structuring a deal like that up front with purchasing in a few years make sense or dumb? If so, we aren't positive on the commercial lending part when year 3 is up. Would we need to put an additional 20% down on a commerical loan at that point to qualify, and what flexibility is there in establishing income minimums to even meet a criteria for commercial lending? It is my understanding that it isn't like traditional loans like mortgages based on personal debt to income ratios but more about the properties income potential? We have a few more questions but wanted to see if anyone there can shoot holes in this plan and help educate a bit more on the process. Thank you again for anytime spent reviewing and responding.


-Garrett

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Arman AhmedPro Member
Real Estate Agent · Columbus Cleveland Dayton, OH · Member since 2024 · 2k+ posts · 966 votes
1y

Hey Garrett,

This is definitely a creative deal structure, but there are a few things to consider before moving forward:

1. Lease-to-Own Structure – The biggest risk is that you’re committing to a non-refundable $300K down payment without having guaranteed financing in place for year 3. If market conditions change or you struggle to generate enough revenue, securing a commercial loan could be tough, and you’d risk losing that money.

2. Commercial Loan Considerations – Yes, most commercial loans require 20-30% down, meaning you’d likely need another $290K-$435K when the balloon payment is due. Lenders will evaluate the property based on the Debt Service Coverage Ratio (DSCR) rather than personal income, so they’ll want to see consistent revenue covering at least 1.2-1.5x the monthly loan payments. Right now, your revenue projections are promising, but lenders may want at least 2 years of documented financials to qualify the deal.

3. Potential Financing Gaps – Since the STR income and pumpkin patch business are still projections, lenders may view this as a higher-risk deal. You might want to explore:

• Seller Financing – Ask if the seller would be open to carrying some of the financing after year 3.

• Commercial Bridge Loans – Short-term financing that could help if you need more time to stabilize income.

• Partnership with Investors – Bringing in experienced commercial investors might help strengthen your lending position.

4. Protecting Your Investment – With the title staying in the seller’s name, make sure you have a strong legal agreement in place to protect your interest in the property. You don’t want to risk making improvements and generating revenue without a clear path to ownership.

If you’re set on this deal, I’d recommend talking to a commercial lender now to get a sense of what financing could look like in year 3. That way, you can go in with a more solid plan. Happy to brainstorm more if you need!

[email protected]614-418-6081
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  • Arman AhmedPro Member
    Real Estate Agent · Columbus Cleveland Dayton, OH · Member since 2024 · 2k+ posts · 966 votes
    1y

    Hey Garrett,

    This is definitely a creative deal structure, but there are a few things to consider before moving forward:

    1. Lease-to-Own Structure – The biggest risk is that you’re committing to a non-refundable $300K down payment without having guaranteed financing in place for year 3. If market conditions change or you struggle to generate enough revenue, securing a commercial loan could be tough, and you’d risk losing that money.

    2. Commercial Loan Considerations – Yes, most commercial loans require 20-30% down, meaning you’d likely need another $290K-$435K when the balloon payment is due. Lenders will evaluate the property based on the Debt Service Coverage Ratio (DSCR) rather than personal income, so they’ll want to see consistent revenue covering at least 1.2-1.5x the monthly loan payments. Right now, your revenue projections are promising, but lenders may want at least 2 years of documented financials to qualify the deal.

    3. Potential Financing Gaps – Since the STR income and pumpkin patch business are still projections, lenders may view this as a higher-risk deal. You might want to explore:

    • Seller Financing – Ask if the seller would be open to carrying some of the financing after year 3.

    • Commercial Bridge Loans – Short-term financing that could help if you need more time to stabilize income.

    • Partnership with Investors – Bringing in experienced commercial investors might help strengthen your lending position.

    4. Protecting Your Investment – With the title staying in the seller’s name, make sure you have a strong legal agreement in place to protect your interest in the property. You don’t want to risk making improvements and generating revenue without a clear path to ownership.

    If you’re set on this deal, I’d recommend talking to a commercial lender now to get a sense of what financing could look like in year 3. That way, you can go in with a more solid plan. Happy to brainstorm more if you need!

    [email protected]614-418-6081
    2Reply
  • Garrett H.
    OP
    Julian, CA · Member since 2020 · 24 posts · 7 votes
    1y

    Arman,

    Thank you so much for responding with your thorough analysis. I had another recommendation that we purchase the property at $300k down and then make interest only payments for 3 years to the seller so that we could obtain title immediately, then by year 3 we can hopefully refi. I wasn’t clear with this strategy tho if the seller would have to own the property outright or they could still do it if they have an existing mortgage on it? Let me know if you have any suggestions there. 

    The commercial bridge loan sounds like an interesting product. I’m not familiar with that and will research that. Thank you again for all of the help. 

    0Reply
  • Ko KashiwagiPro Member
    Lender · Los Angeles, CA · Member since 2022 · 967 posts · 445 votes
    1y

    Hi Garrett,

    Is the seller willing to go on second position? There are programs that allow seller financing on the second position so you can leverage up to 90% CLTV.

    And what does the as-is value look like? If you have enough equity you may be able to finance with private lenders that will finance based on the appraised value

    310-848-9776
    0Reply
  • Stanley Yeldell
    Member since 2025 · 116 posts · 52 votes
    1y

    Hey Garrett,

    This is a really interesting structure, and you’re asking the right questions. Here are a few things to consider:

    Structure of the Deal:

    The $300k down, $4,500/month lease structure can be a viable way to secure control of the property without immediate financing. However, since those lease payments don't apply to the principal, it’s essentially a deferred balloon payment structure. It’s critical to ensure you have a clear exit strategy before the 3-year term ends.

    Commercial Lending Considerations:

    When you're ready to obtain a commercial loan, lenders will primarily look at the property's income potential (Debt Service Coverage Ratio - DSCR) rather than personal income. They typically want to see at least a 1.2x-1.5x DSCR.

    Yes, you may need to put down an additional 20-30% at that time. However, if the property value has appreciated and you’ve established solid income streams (like the pumpkin patch and STRs), that equity could potentially cover some of that down payment requirement.

    The lack of direct commercial experience may pose a challenge with traditional lenders. Partnering with a more experienced operator or bringing in a guarantor with a strong commercial track record could strengthen your application.

    Additional Considerations:

    Explore creative financing options like seller financing for the remaining $1.45M if they’re open to it.

    Consider structuring the partnership with clear roles and financial responsibilities, especially regarding funding the $300k down payment and ongoing improvements.

    Have you considered bridge financing or a line of credit to help cover initial operating costs or unforeseen expenses during the lease period?

    Would you like me to draft some potential questions for a commercial lender or broker to help you gain more clarity?

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