Updated over 10 years ago on .
Preferred Equity
If your an investor trying to buy a non-owner user commercial property today, just for income, you’ll find that most banks are insisting on a 30% to 43% down-payment. To make matters worse, most banks today will NOT allow a second mortgage behind their commercial loan. They want the buyer to have a huge amount of skin in the game, and they don’t want any property repairs to be neglected because the owner has to use his precious cash flow to make second mortgage payments.
Preferred equity solves your problem. Preferred equity is NOT a loan. It’s a form of equity. There are no required monthly payments. This why the bank will allow us in the capital stack, while a second mortgage is strictly prohibited. An example will make this clear:
$ 1,000,000 Purchase Price
600,000 New Loan From the Bank
$ 150,000 Preferred Equity From B&S
$ 250,000 Cash Down-payment (25%)
The cost of equity is always a little more expensive than the cost of mortgage debt because preferred equity is part of the equity that protects the first mortgage lender. Our money is the buffer that allows the mortgage lender to sleep at night. The buyer’s down-payment and our preferred equity are therefore very exposed to a complete loss .
Fortunately our preferred equity from is far cheaper than most JV partners or equity providers. Consider the following:
You can use as little as $100,000 of our preferred equity.
We do not usually demand any part of the profit from your client’s real estate investment. This makes our preferred equity much-much cheaper than any JV partner.
Preferred equity is NOT a loan. Preferred equity is a co-investment with your down-payment. Whether we gets paid depends on the success or failure of the venture. Therefore there are NO required monthly payments. There are no personal guarantees to sign. If you legitimately have a bad month, you don’t have to make the "monthly payment" (preferred equity yield payment) that month.
For more info:
888-410-9330