LTV = No money down?

6 Replies

I have a two quick questions that I am hoping someone on here can help me understand.

I have a possible deal where the (commercial) building will appraise for well over what they are willing to sell it for (30% +/-).   Assuming this is true.... 

1. Is it possible to structure the deal so that I put no money down because the LTV already has a difference of 20%? In theory the banks want that twenty percent down so that they are insulated in the case of a foreclosure.

2. Assuming that it is possible to put no money down... and because the LTV ratio is so far apart, would it be possible to pull money out of the property to create an emergency fund?

The people selling the building are friends and (maybe) willing to be pretty flexible as long as they get the money they want. What I was thinking is some kind of deal where we pay more but then they give us that extra in cash at closing (some sort of contract drawn up prior). 

My main goal (and I have no idea how realistic it is) is to create an emergency fund. This would be my first commercial property and while it has some tenants already I know these can be a bit more difficult to lease out than a 2 bed 1 bath. 

Any thoughts/suggestions/advice would be appreciated. Thanks!

Typically commercial is 25 percent down from what I’ve seen. And if you can get it to appraise for more than 30 percent above purchase, you may be able to use that as your down payment, but really the only way to know for sure is to find a commercial lender who will do this for you, which I’m guessing will be a bit difficult.

Call around and see what they say. Good luck!

Thanks Caleb,

Kind of what I figured. Possible but difficult. 

You may find a local bank who would consider this, but not likely.  Every commercial lender I work with will only lend off the purchase price, no matter how great a "deal" you're getting.  


Generally the bank will lend on the lesser of appraised value or purchase price and build LTV off of that. Now after you’ve built a strong relationship and portfolio with a bank they can be more creative on commercial portfolio loans. Regarding the second question, concessions are allowed but often limited and generally only apply toward closing costs. If you had a contract to overpay and receive cash after closing (outside of bank/lenders knowledge) you get into fraud concerns.

Considering the sellers are friends, would they consider a land contract? If you did this and either held it for a year (I️ believe that is the standard, but I️ would confirm with the banking institutions you want to go with), you could then refinance, pay off your land contract and pull cash out if appraisal came back higher.

Your original thought process is correct in that a bank wants the 20% (I’ve seen closer to 25-30% on commercial loans until you build relationship) to protect themselves from fluctuations in value, but they also want skin in the game.

Good luck,


When I did some shopping around since I was new, had no relationships with lenders/banks, and no previous track record I was going to be required to put funds down no matter what. It was explained that I needed skin in the game and a down payment was part of that with really no way around it. 

On the residential side the way around that is a cash purchase and delayed financing. If you get a good enough deal you can just refi all (or more) your money out and still be within the LTV requirements. I'm not sure if this works commercial (doubt it).

Seasoning of vesting/title for 12 months is generally required before a bank or lending institution will refi based on actual appraised value.  

Delayed financing, where they rapidly refi you at after a cash purchase will usually be for 70% of appraised value or PP, whichever is less.

Easiest for you would be to buy with seller financing with a small down payment and wait a year to refi.   Make sure you put something down. Consideration must be exchanged for a transaction to even be legal.

I'm not a fan of land contracts because you don't own it until you pay it off, but some kind of mortgage/deed of trust via seller financing would be my go-to here @Daniel H Truex

Be patient with the refi part.  12 months is nothing in RE horizons.  I think in decades.  What kind of commercial deal is this?


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