I've been looking at investment properties, either retail or multifamily 5+.
Banks I've talked to saying 20-35% down payment in general for multi unit.
Someone told me 50% for retail commercial properties.
I said he's crazy. I recently sold my business+real estate meaning I do not have additional income coming in. I didn't make much either for last 2 years.
Realistically, with excellent credit, not much of income last 2-3 yrs, can I get the loan approved? If I had $250k, how much can I buy with that money?
Lack of income is a killer. You're going to have a hard time getting any loan. If you do find a bank that will make the loan, they going to want to have plenty of room on the loan and they're going to want to be convinced the property itself can cover the loan. They know that you have no means of dealing with a hiccup with the property. That's where that 50% number is coming from. Further, if you have no income, the bank is going to know that you are going to be pulling cash out of the property to use for living expenses.
I fully believe 50% on a retail property. I've seen newly constructed retail space around here sit empty for YEARS. Now, it does appear to be picking back up.
The terms on these loans varies a lot. If local bankers are giving you terms, believe them.
I'm certain you can buy a $200K property with your $250K in cash. If you find a solid property with a long (five years), documented history, I suspect you can get a loan, at a pretty low LTV.
Getting a 10% cash on cash return from rentals is doing pretty well. That means you're going to make $25K a year from this money. Now, perhaps you can do better and make 20%. That gives you $50K. Is that enough to live on?
Thanks Jon. So should I conclude that commercial loan is no go and try to find something I can buy cash out-right?
Lowest I saw when I was getting my commercial loan last year was 20% down but be ready to pay either a slightly higher interest or points. My choices at the time was 20%,25%,30% down-payment & 10yr, 15yr at most otherwise it was a 5 or 7yr arm with balloon payment at end & rates started 2 to 3% on top of PRIME rate plus points for the lower rates.
I have used commercial loans before and I had to put 25% down. I am not involved in retail commercial properties, but I have heard that 50% down is not uncommon. I guess that is why they call it a "Rich Man's game".
You can partner with another investor who has other sources of income to buy a multifamily or retail property and pool your cash. This will make the bank go a higher LTV than 50% with a partner who has reserves and more funds coming in.
Banks also allow this for investors who are out of the country. They will look at a sponsor for the foreign national as a partnership. I have found some banks have foreign national programs but want 50% down which kills the investors cash on cash. The local sponsor helps with a 75% ltv.
Bring in a partner with a net worth equal or higher than the loan and liquity around 10% of the loan. That should help you get a better LTV 70-80%. They will need to sign on the loan and it will be a recourse loan. These requirements vary with lenders.
Thanks for the replies guys! I'm not out of country investor by the way.
Partnership is not an option for now, maybe for later if I can't really get a loan. I thought I had a good idea what the bank is requiring like 30% down, dscr of 1.20 or higher, good credit score etc.
I mean with 250k, that only allows me to buy 500k property vs. 830k if 30% down.
I like to find a local bank that will require only 30%, I'll be ok with 35% too. I'll keep trying.
I have had to owner finance the commercial properties I have sold in this market. I get 20 - 35% down, I then will finance the balance for 5 years at 8 %, 10 years and 12%, or 15 years at 14%. This allows me to sell these notes in the secondary market after 12 months of seasoning without having to take a large hit.
im a commercial mortgage banker, here's what im seeing:
when looking at commericial loans banks are increasingly looking at the creditability of the borrower when making loans instead of the value created by the real estate. I've even seen some require a net worth double the amount of the loan. without any income or a track record of investing in similar properties I'd say you'll have a very difficult time getting 75% LTV from a bank.
Life insurance and cmbs deals will go to 75% LTV and without recourse. some of them will loan on properties as small as $500,000 but most are looking in the $2-3MM range as minimums.
It really depends on the level you want to play at. if you can convince some partners to go in with you on a $2-4MM deal you'll get away with 25-30% down all day for all property types.
Normally for retail would be 25%. And for multifamily (5 units and up)its at 20% and we don't underwrite based on tax returns. And sometimes we can be a little more aggressive and go 15% down but that includes acquisition and closing. But like Jeff G; said you have to show that 10% liquidity. We are generally more flexible than banks.
on my most recent purchase of a commercial retail space last month, I had to put about 50% down. It is very different from residential.
I heard the same thing. about 20% down for commercial loans. there are better options i think , but im not an expert
I am going to revive this conversation as I have the following questions regarding a multi unit:
- Will my personal income and W2 tax returns play any role?
- Will I need to have a reserve on my current investment properties, like a conventional loan requires?
- How should I be doing the math on every 100k of the purchase price?
I'm open to answering questions.
Thanks in advance
25% is minimum down payment in our part of the world.
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I feel like this is pretty counter to what the plurality suggest but i use a local credit union to do acquisitions with in-house commercial loans. Though i do have W2 income, i have been told the focus of the loans are NOT the individual but it is the DEAL that carries the true weight.
80% LTC, 5 Year Loans, Amortized over 20 Years. (Rates typically 4.5) Interest only for 6-12 months depending on scope of project.
Puchase Price + Rehab Cost 1,100,000
----- 1sT Mortgage $880,000 (held by bank)
----- 2nd Mortgage $100,00 (held by seller, interest only for 3 years, amortized over 20 years)
------ Pro- Rated Rents $14,000 ( Closed on the 2nd of the month) (Also got a repair credit & credit for deposits but not counting those.
$106,000 Down Payment
@Mario Brown , can you PM me, I'd like to understand your numbers on this deal. I have a 4-unit, and looking at some larger buildings to acquire, but want to understand more about the commercial side a bit.
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