self-storage, getting a loan for more than appraised value

[James Seely]

I have an opportunity to buy a small self storage unit but may have an issue with financing.  The seller stated several other people have gone to the bank and been turned down because the property appraises for less than the asking price.  Here are the general details

Asking price $325,000

Appraised  $260,000

Gross profit 44,000 / yr

Expenses 11,000 / yr

What I'd like to do is get a loan for the 80% of the asking price (260,000) but if banks will only loan on a percentage of the appraisal price I would have to find ~120,000 instead of 65,000.  

A loan on 80% of asking still provides $1000 per month After debt services. So, I'd be interested if anyone has gotten a loan approved over the appraised value and any special way to setup the deal to make it a success. I thought of creating a business plan to take to banks that would lay out the NOI to show the last 3 years of actuals and projected 3 years with a bank loan but it sounds like most banks only see this as property not as a business.

I know there are many other options with seller financing which *might* be an option.  Just trying to keep my options open in case they aren't in favor of that.

Thanks,

James

[Brian Burke]

@James Seely it's quite possible that the appraisal came in at the value it did because that's really all it's worth. If you try too hard to outsmart the appraiser you might end up dipping into your own pocket to service the debt when the income turns out to be insufficient to carry the debt on its own.

How did you calculate the gross income and expenses?  If you've never done this before you only have the seller's reported numbers to guide you.  If you have experience in self storage, or any commercial property, you could draw from that past experience to guide you. Without such experience you are flying blind. Bankers and appraisers look at commercial property all the time. They are your seeing eye dog when you don't know how to see on your own yet. Ignore them at your own risk.  

It's entirely possible that the property taxes will go up after the sale or other trailing costs are showing lower than normal because the owner is skimping on necessary expenses to inflate the numbers in advance of a sale.  If you are certain that the appraiser has it wrong, float the numbers out to a few commercial lenders and have them give you a first pass underwriting. You might find a consensus as to value that trends toward your estimate...or that of the appraiser.  The sooner you can figure out who is right, the sooner you can get to moving on the deal, or just moving on.