Buying Commercial property as my first deal

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Buying Commercial property as my first deal

Shakeel Amir
Member since 2010 · 1 post · 0 votes

Hi,

I have been a passive member of biggerpockets for a while. I already own a home and i have learned a lot about residential properties from books and cds.

I have just seen a 15+ unit building listed for sale in my area. i know the building very well and i want to make an offer. The owner is very motivated and he states that he is willing to finance 70% of it. I have a feeling that he can finance even more than that.

I have great credit but i know the commercial property would have very little to do with my own credit.

So how do i go about finding out if i can get a commercial loan for this property. If the owner is willing to finance 80% of the deal, do i have to pay any cash from out of pocket or would a bank give me a loan?

Is there any company or quick mentor that can help me navigate this deal. I am a CPA and work in finance industry so i can crunch all the numbers, i would need some direction.

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Account Closed
Landlord · Seattle, WA · Member since 2010 · 3k+ posts · 1k+ votes
16y

You may want to check out the commercial property forum because there are a number of contributors there that have talked about these kinds of issues.

You may run into some trouble getting a conventional loan because you don't have any past experience with this type of property. You may be able to cure this situation by finding partners that have experience with multi-family commercial properties.

Another issue that comes to mind is leverage. Leverage is a good thing, but to much leverage usually means negative cash flow or at best very little cash flow. Private lenders and conventional lenders are going to want to see some of your skin in the game.

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  • Account Closed
    Landlord · Seattle, WA · Member since 2010 · 3k+ posts · 1k+ votes
    16y

    You may want to check out the commercial property forum because there are a number of contributors there that have talked about these kinds of issues.

    You may run into some trouble getting a conventional loan because you don't have any past experience with this type of property. You may be able to cure this situation by finding partners that have experience with multi-family commercial properties.

    Another issue that comes to mind is leverage. Leverage is a good thing, but to much leverage usually means negative cash flow or at best very little cash flow. Private lenders and conventional lenders are going to want to see some of your skin in the game.

    4Reply
  • Peter Giardini
    Rental Property Investor · Baltimore, MD · Member since 2009 · 624 posts · 559 votes
    16y

    Charles provided some great insight. I would add that a 15 unit building is in that middle ground where many people don't know how to make them cashflow.

    They are too big to qualify as residential and too small to warrant their own on-site management staff.

    Therefore any lender who knows what they are doing is going to want to see that you have experience managing this type of building.

    Also, the thought that the owner is willing to finance most of this purchase may sound great, (please note Charles' comments), it does not relieve you of the responsibilty to conduct your due diligence... thoroughly!

    This should include verifying everything... rents, expenses, zoning, inspection records, leases, taxes, utilities... and about 100 other things.

    Getting into commercial buildings can be very lucrative indeed... but they can also knock you out of the game very quickly if you don't know what you are doing.

    Best of luck!

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  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    16y

    For you to obtain conventional financing, the seller would have to be willing to carry back a second mortgage, as any other lender would require a 1st lien position. When the seller suggests he is willing to accept a mortgage for 70 - 80% of the purchase price, in all likelyhood he is talking about a 1st lien.

    Private Mortgage Financing Partners, LLC
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