Ideas for creative financing on a commercial space?

Question

I visited with a friend the other day who had converted a 5,000 sq. ft. commercial warehouse into a living space/art studio in Inglewood CA.  It was really well done.  They live in the front 1,500 ft, and the rest is divided into two studios (his/hers) and a woodshop for them both.  She and her fiance are leasing the place for $3K/mo ($0.60/ft) and the owner would like to sell the place to them.  They haven't discussed price yet.

She doesn't have any money to put down and asked whether I had any creative ideas.  Nothing came to mind, but I thought it would be a fun question to throw out to BP.  I have some cash to invest right now and wonder whether there is some kind of creative deal that could be struck.  Of course, the property price would have to make sense.  The place is not zoned for living, so they couldn't get a home loan.

Dmitriy Fomichenko · Answer

@Brian Gibbons thank you for the mention!

@Andrew Werner self-directed IRA or 401k can be used to invest in non-traditional assets such as real estate. You have a lot of freedom but there are also few limitations some of them include:

• The property purchased in your retirement account can only be used as investment, you can not live in it or recieve any other personal benefits from the investments
• You personally can not do any work on the property
• You can not use conventional financing and must use non-recourse loan
• You can not use those funds in your personal deal
• You can not borrow money from an IRA but you can however take personal loan from Solo 401k, up to max. of $50K

Feel free to contact me to set up free consultation, I would need to have better understanding of the situation to give you some recommendations.

Brian Gibbons · Answer

@Andrew Werner

If you are considering lending money from your IRA, get advice from

@Dmitriy Fomichenko  first.

Good luck!

Dan Wallace · Answer

i just came across this post and even though it may be stale I wanted to add an idea that might help on this deal or others. You indicate your friends did improvements to the property. There may be the ability to count those improvements as the equity towards the purchase. I have used tenant improvements before as the down payment and as you might suspect there are some restrictions.

If I can further help on this deal or others, let me know.

Jimmy Moncrief · Answer

Seller-financing is pretty-much the only way.

However, I would also look at artist grants...

Andrew Werner · Answer

@Brian Gibbons

Thanks for the ideas.  Very interesting.  I had not considered a SDIRA before.  I have an IRA, but did not realize I could get extra utility out of the funds.

Brian Gibbons · Answer

Oh here is the link for Disqualified persons rule

https://www.trustetc.com/self-directed-ira/rules/d...

http://www.biggerpockets.com/users/SenseFinancial

@Dmitriy Fomichenko is awesome at SDIRAs.

Brian Gibbons · Answer

If there is no down payment money, has your friend exhausted all resources?

One of my favorite ways to get my Tenant Buyers on my lease option assignment deals to "find" the 3% to 5% option money is from relatives.

Some relatives can lend from their IRA, going through an approved custodian.

The relative can not be a "direct line blood relative"

So no parent or grand parent.

But step parent, step grandparent, uncle - aunt is ok.

Get an understanding on loans from IRAs from

TrustEtc.com

https://www.trustetc.com/resources/education/artic...

What is prohibited

https://www.trustetc.com/self-directed-ira/rules/p...

Hope that gives you ideas.

If that fails, finance the option (you can do that in commercial, not residential).

2 checks each month - $3000 plus $500 - $1000, for option payment.

Andrew Werner · Answer

@Anthony Gude, @Michael Henry, @Bill G.

Thanks for any further input.

Andrew Werner · Answer

Thank you guys for your input.

I should have been more clear.  My friend is the tenant.  She and her fiance rented the place, refurbed it and now live/work there.  The owner/landlord wants to sell to my friend, the tenant, however my friend is short of cash.  So she needs to come up with a down payment for conventional financing.

The owner is also contemplating a cell phone tower lease on the property, which would provide (according to the owner) $2,500/mo lease income.  The tenant (my friend) doesn't want to have the cell tower on top of her home, hence her added interest in buying the property to prevent the cell phone tower.

I like/understand the idea of the seller financing, but again she doesn't have a down, so she'd need to convince the landlord to go that route without a down.  Is that even reasonable?

I have cash and am interested in investing in the area, but getting in the middle of this sounds sticky, however I'm open to ideas.

Bill Gulley · Answer

Just seller finance it as a commercial property, I'd suggest the buyer needs to have 60% LTV or less before any balloon payment as that will be in line with small commercial financing to refinance the deal. Check credit and ability to pay and use an attorney.

That is not a condo and it would require certain rehab features, like firewalls, don't even go there.

It can also be done as a lease option.

They may have had a special use permit of some kind for living quarters in a commercially zoned property, see if that is required.

Conventional financing of a residence in a commercial or mixed use building is allowed, but the issue will be comps for an appraisal, not so much loan requirements. I've put residences in commercial areas into the secondary market, hard, but not impossible. :)

Ideas for creative financing on a commercial space?

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