Need advice on first time investment

[Anjelica Allen]

I moved to Chicago with just a backpack an $100 to my name and no credit. I'm working extremely hard to get on my feet, and now I'm ready to advance.

I'm now seeking to buy a multi family unit 5+ unit or commercial property in the city of Chicago. But the brokers I've been dealing with state it would be too difficult for a commercial loan. And that I'm only approved for fha 250k multi fam unit 3- unit. 

My question is, how do I improve my chances for a better loan offer or assistance in commercial property? 

Please Note: I have no family or friends to co sign. 

[John Warren]

@Anjelica Allen one of the tricky things about the 5+ unit space is that there is not really an option for low down payment like there is in the residential space. Once you cross over into commercial territory, you are more or less looking to put down 20-25% most of the time. You can get creative and borrow money for construction, but even that is not simple since you need pretty substantial reserves. 

I would think long and hard about why you want to get into commercial versus residential. From a functional perspective, there is pretty much zero difference between owning a four unit versus a five unit, but the financing is night and day different. 

[Paul De Luca]

@Anjelica Allen

Based on your residential pre approval I think you'd be hard pressed to even get a 3-unit in Chicagoland even if you targeted C or D class neighborhoods.

I think you should take what you can get and start with a 2-3 unit house hack.

[Anjelica Allen]

Quote from @Paul De Luca:

@Anjelica Allen

Based on your residential pre approval I think you'd be hard pressed to even get a 3-unit in Chicagoland even if you targeted C or D class neighborhoods.

I think you should take what you can get and start with a 2-3 unit house hack.

 Thank you for your insight, I'll keep it in perspective that we all have to start somewhere.

[Scott E.]

Your question: How do you improve your chances for a better loan offer or assistance in commercial property?

Answer: Save up more money, increase your income, decrease your expenses, and improve your credit

[Anjelica Allen]

Quote from @John Warren:

@Anjelica Allen one of the tricky things about the 5+ unit space is that there is not really an option for low down payment like there is in the residential space. Once you cross over into commercial territory, you are more or less looking to put down 20-25% most of the time. You can get creative and borrow money for construction, but even that is not simple since you need pretty substantial reserves. 

I would think long and hard about why you want to get into commercial versus residential. From a functional perspective, there is pretty much zero difference between owning a four unit versus a five unit, but the financing is night and day different. 

 I understand, my goal was to get as many units as possible. Eventually I planned on utilizing the area for versatile use outside of tenants that would produce a high income. But I'm not ready to establish it as a business at the start of purchase.

[Mark Ainley]

@Anjelica Allen One thing many of us have learned on here is "unit count" is not a good measure...quality is.  Dont that unit count distract you.  I will DM you a commercial lender that maybe more flexible but utilizing your conventional options is something most of us wish we still had the option to do. 

[Lucia Rushton]

@Anjelica Allen I know you want a 5+ but without a sponsor I do not believe any bank or commercial mortgage broker will provide the funding for you. Therefore I would start with a 2-4 door with your FHA loan and rinse and repeat until you have enough real estate assets to qualify on your own for a commercial loan.

Sorry don’t mean to burst your bubble.

As always just my opinion.

[Crystal Smith]

Quote from @Anjelica Allen:

I moved to Chicago with just a backpack an $100 to my name and no credit. I'm working extremely hard to get on my feet, and now I'm ready to advance.

I'm now seeking to buy a multi family unit 5+ unit or commercial property in the city of Chicago. But the brokers I've been dealing with state it would be too difficult for a commercial loan. And that I'm only approved for fha 250k multi fam unit 3- unit. 

My question is, how do I improve my chances for a better loan offer or assistance in commercial property? 

Please Note: I have no family or friends to co sign. 

The way to improve your chances to purchase a commercial property are as follows:

1. Use your pre-approval to find and close on a small multifamily first. Reason- Establish a small track record that you can use later

2. While looking to close start networking with investors, people w/ money,....  Let them know you are about to close on a small multifamily or you have closed on the deal

3. After you close on the small multifamily, successfully manage the property; develop a track record where you will be able to show the net income you're receiving from the small multifamily.  Continue to network and build your list of potential future partner

4. Let. the network you've been building up know that you're looking for a multi5+ deal.  Objective:  See if you can find someone to potentially partner with.  

5. When, not if, you're successful in finding a partner then approach a mortgage broker.  

It's a process that won't happen overnight but that's what I would do in your situation.

[Anjelica Allen]

Quote from @Mark Ainley:

@Anjelica Allen One thing many of us have learned on here is "unit count" is not a good measure...quality is.  Dont that unit count distract you.  I will DM you a commercial lender that maybe more flexible but utilizing your conventional options is something most of us wish we still had the option to do. 

 Thank you 

[Anjelica Allen]

Quote from @Crystal Smith:

Quote from @Anjelica Allen:

I moved to Chicago with just a backpack an $100 to my name and no credit. I'm working extremely hard to get on my feet, and now I'm ready to advance.

I'm now seeking to buy a multi family unit 5+ unit or commercial property in the city of Chicago. But the brokers I've been dealing with state it would be too difficult for a commercial loan. And that I'm only approved for fha 250k multi fam unit 3- unit. 

My question is, how do I improve my chances for a better loan offer or assistance in commercial property? 

Please Note: I have no family or friends to co sign. 

The way to improve your chances to purchase a commercial property are as follows:

1. Use your pre-approval to find and close on a small multifamily first. Reason- Establish a small track record that you can use later

2. While looking to close start networking with investors, people w/ money,....  Let them know you are about to close on a small multifamily or you have closed on the deal

3. After you close on the small multifamily, successfully manage the property; develop a track record where you will be able to show the net income you're receiving from the small multifamily.  Continue to network and build your list of potential future partner

4. Let. the network you've been building up know that you're looking for a multi5+ deal.  Objective:  See if you can find someone to potentially partner with.  

5. When, not if, you're successful in finding a partner then approach a mortgage broker.  

It's a process that won't happen overnight but that's what I would do in your situation.

 Thank you so much for your time and advice.

[Eudith Vacio]

@Anjelica Allen - definitely recommend improving your credit, whether its getting a secured credit card with a low amount that you can readily afford, most lenders won't even look at you without having a good credit score. That, or raise money but most want credibility before handing over money to you. 

[Jonathan Klemm]

Hey @Anjelica Allen - First off, congrats for putting yourself in such an amazing position to advance your life.  Where did you move from when you came to Chicago?

The best way to get going on commercial deals is always to find someone with some experience.  I've found that the neighborhood building groups are the best place to find experienced operators.  If you can find someone and work with them to gain some sweat equity that would put you in a great position to partner on a deal.

If you can't find a solid partner then start with the 3 unit ASAP.  The key to getting ahead is getting started.

[Anjelica Allen]

Quote from @Crystal Smith:

Quote from @Anjelica Allen:

I moved to Chicago with just a backpack an $100 to my name and no credit. I'm working extremely hard to get on my feet, and now I'm ready to advance.

I'm now seeking to buy a multi family unit 5+ unit or commercial property in the city of Chicago. But the brokers I've been dealing with state it would be too difficult for a commercial loan. And that I'm only approved for fha 250k multi fam unit 3- unit. 

My question is, how do I improve my chances for a better loan offer or assistance in commercial property? 

Please Note: I have no family or friends to co sign. 

The way to improve your chances to purchase a commercial property are as follows:

1. Use your pre-approval to find and close on a small multifamily first. Reason- Establish a small track record that you can use later

2. While looking to close start networking with investors, people w/ money,....  Let them know you are about to close on a small multifamily or you have closed on the deal

3. After you close on the small multifamily, successfully manage the property; develop a track record where you will be able to show the net income you're receiving from the small multifamily.  Continue to network and build your list of potential future partner

4. Let. the network you've been building up know that you're looking for a multi5+ deal.  Objective:  See if you can find someone to potentially partner with.  

5. When, not if, you're successful in finding a partner then approach a mortgage broker.  

It's a process that won't happen overnight but that's what I would do in your situation.

 Good day,

I followed your advice, I'm about to close on a duplex for 300k. With FHA 203k loan, there's already a tenant living in one of the units. They are not paying market value, but I requested that the seller offer an increase in rent before closing and attempting an eviction. They morgage payment is alot higher than I would like but I have to start somewhere. Hopefully in the time I'm living in the unit, I'm able to find a partner for the commercial property.

If you have any advice from here, it would be appreciated.

[Crystal Smith]

Quote from @Anjelica Allen:

Quote from @Crystal Smith:

Quote from @Anjelica Allen:

I moved to Chicago with just a backpack an $100 to my name and no credit. I'm working extremely hard to get on my feet, and now I'm ready to advance.

I'm now seeking to buy a multi family unit 5+ unit or commercial property in the city of Chicago. But the brokers I've been dealing with state it would be too difficult for a commercial loan. And that I'm only approved for fha 250k multi fam unit 3- unit. 

My question is, how do I improve my chances for a better loan offer or assistance in commercial property? 

Please Note: I have no family or friends to co sign. 

The way to improve your chances to purchase a commercial property are as follows:

1. Use your pre-approval to find and close on a small multifamily first. Reason- Establish a small track record that you can use later

2. While looking to close start networking with investors, people w/ money,....  Let them know you are about to close on a small multifamily or you have closed on the deal

3. After you close on the small multifamily, successfully manage the property; develop a track record where you will be able to show the net income you're receiving from the small multifamily.  Continue to network and build your list of potential future partner

4. Let. the network you've been building up know that you're looking for a multi5+ deal.  Objective:  See if you can find someone to potentially partner with.  

5. When, not if, you're successful in finding a partner then approach a mortgage broker.  

It's a process that won't happen overnight but that's what I would do in your situation.

 Good day,

I followed your advice, I'm about to close on a duplex for 300k. With FHA 203k loan, there's already a tenant living in one of the units. They are not paying market value, but I requested that the seller offer an increase in rent before closing and attempting an eviction. They morgage payment is alot higher than I would like but I have to start somewhere. Hopefully in the time I'm living in the unit, I'm able to find a partner for the commercial property.

If you have any advice from here, it would be appreciated.

That's wonderful news.  I love it.

My recommendation on the next step depends on where you are relative to closing on the property.  If you have the property under contract but have not closed or completed the 203K inspection, then the next step is getting a fast education on the 203K inspection process & coordinating with the 203K consultant and contractor. We are helping a client close on such a deal right now.

1. If you are still in the attorney review and inspection period then I highly recommend doing the inspection with the 203K consultant and contractor at the same time. Try and avoid having the consultant come first to prepare the scope of work without the contractor there. This is the primary reason that it takes so long for the 203K to close. 

2. Check with your loan officer on whether or not its required that the property be delivered vacant. If you're going to renovate the tenant's unit you may as well have it vacated.  Hard to renovate while it's occupied

3. Consider establishing an LLC.  The purpose- After you close you will deliver a letter to the tenant that there's new ownership and all future payments should be made to the LLC.  It's what I did 20+ years ago.  While I lived in one of the units as far as the tenants were concerned the LLC owned the building.  The LLC really didn't own the building- It was a property management LLC. Why do this- Learn how to manage a small multifamily through your LLC; start developing the track record.

[Anjelica Allen]

Thank you for your prompt response. I've just finished 2nd underwriting, an waiting on CTC. I didn't get a consultant/HOA because my repairs were under the limit for appointing one. Tho I did have contract and housing inspect walk thru house the same day. I want to establish an LLC and put house and car under it. But I think the tenants will be leaving as they are MTM and they are paying below market value. I'm waiting on response from seller if they will stay or not with being offered a lease and raised rent to value. Their paying 950 for a larger unit with 2 beds, when everywhere else valued at 1300.