Can a first time investor get a commercial loan?

Question

Hi everyone!

I have been working on learning about real estate for a while now. But haven’t had the capital to begin investing yet. I want to do buy and hold investing, and was wondering if it’s possible to get a commercial loan on a property as a first time investor. If I were to do a master lease agreement, would it be possible for me to get a commercial loan once I have enough capital for a down payment?

Thank you in advance for any guidance and info you can give!

Amad Osman · Answer

Hey Ryland,

My first property was a 6-unit and my loan was approved in 48 hours. I used a small local bank and it was way easier than a personal mortgage. I am guessing if the numbers work and you have good credit as the guarantor it should be fine.

Good luck!

Ellie Perlman · Answer

@Ryland Boswell - many first time investors partnered with someone who was qualified for a loan and gave them equity in return for signing it (sound simple, but hard to do).

Henri Meli · Answer

@Alex Knight . Based on my experience, bankers love numbers and plans. In one of my previous deals, I used the biggerpockets.com calculator and it provided my a nice pdf with all the numbers bankers want to see. Breakdown of all expenses, income projections. Then I added an execution road map. I packaged it together as a business plan. And every bank I went to, bankers were impressed. If you haven't yet tried the calculator, you should give it a shot.

Amad Osman · Answer

@Jacob George Lada yes, commercial loan. Amortized over 20 years with a 5 year ballon. 75% LTV, 0.5 point, fixed rate at 4.49%

I used Orrstown bank a small regional bank in PA.

Henri Meli · Answer

@Ryland Boswell I have seen first time investors get approved. And I have seen experienced investors (like myself) get denied for loans. Here is my suggestion.

If you find a property, where the numbers work, then put together a solid business case and visit 5-10 banks and see what they say. Based on their response, you will know what to do next.

Even if you are turned down, this gives you an opportunity to start building relationships with bankers, lenders and have a file with them. Because when you come back a few years from now, they will already know you and things will be "easier".

Richard Sherman · Answer

@Ryland Boswell certainly worth talking to a lender.  I would try to get one local to the market you are buying in and you can overcome the no experience question by making sure to get a good local property manager, you then benefit from their experience.  #1 important is the property and its numbers (debt service ratio etc) then it is your strength as a borrower (income etc)..if the property numbers are good and you have professional (quality..not always the same thing) that you will use then you should be able to find lenders.  In many ways commercial loans are easier than residential loans, especially once you are established.

Ryland Boswell · Answer

@Richard Sherman I have good credit. Aside from my job, would the cash flow from the master lease count as income? I would also be saving it for the down payment at the end of the master lease term. Are no current assets at that time a deal breaker? In terms of market, I’m looking out of state mostly in the Midwest as that’s where it seems to be the most plausible. But I’m always open to other possible areas. Being from California is seeming  to force me to invest out of state.

Richard Sherman · Answer

@Ryland Boswell it will depend on the property and how strong of an investor you are.  Any reason you want to start with more than 4 units?

Alex Knight · Answer

@Henri Meli

Could you please elaborate on what you mean by putting together a ‘solid’ business case - do you mean how the property will be renovated, increase rents, etc?

Ryland Boswell · Answer

How large of a property do you think it’s possible to go? Like I said I would be doing a master lease agreement  for a few years them make a sizable down payment for the loan. I remember Brandon Turner mentioned in his book that he got a 24 unit property through a master lease agreement. Is it possible to go bigger?

Can a first time investor get a commercial loan?

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