Commercial real estate
Member since 2025 · 10 posts · 7 votes
Commercial real estate
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G. Brian DavisPro Member
Investor · Hatboro, PA · Member since 2016 · 3k+ posts · 867 votesIf you’re planning to keep and use the property, I’d look at a few options before agreeing to the seller’s 50% down requirement.
I’d talk to a local commercial lender about an owner-occupied commercial loan and also ask whether they can include the renovation costs in the financing. SBA financing may be worth looking at too, depending on the business and property.
The seller financing is another option, especially if they’re flexible on the down payment or terms. I’d compare the total cost and terms rather than automatically putting 50% down.
Before doing anything, I’d get a detailed estimate of the rehab and make sure the property still makes sense with the purchase price plus the renovation. The renovation can change the economics pretty quickly.
I’d probably talk to 2–3 lenders and let them structure the numbers. You may find there’s a better way to finance both the property and the improvements than the seller’s current terms.
9 Replies
- 1wHenry ClarkPro MemberDeveloper · Member since 2020 · 4k+ posts · 4k+ votes
OP.
Give some numbers. 50% down say $1mm; another $1mm to finance; then another $500k to rehab? Doesn't need to be exact, just for order of magnitude.
Owner financing is best, but depends on the terms. 50% down is a lot. Then you want the remainder to be favorable terms. Say 2 year interest only while rehabbing. Interest should be say 2% points below market. Then a 5 year Balloon on a 25 year Amortization. With another option to finance another 5 years with them.
What is your world outlook? I expect interest rates to rise significantly. So we want to lock in as long a term as possible. We are doing SBA loans with 20 year fixed for the SBA portion and 10/5/5 with the local participating bank. Great if you plan to use. SBA doesn't like commercial rental units.
Owner financing. Will they take a second position behind the ultimate lender?
How much credit will your ultimate lender give on the 50% down, or will you need to kick more in as a downpayment? Will it appraise?
Rehab and "rent up" or income break even period? Go for interest only during rehab and then your start up period, say 18 months.
Confirm you can get insured for both the building and your business.
Confirm zoning. If you are a restaurant, do you have enough parking spaces for zoning. Any special use permits needed. These points are to reduce your risk, but to your question, determine the importance of both Interest only period and the amount of interest to budget for those phases. We have a project, that I planned to be operational in a year and it took 2 years. Another $50,000 of interest I had not planned. Luckily, we were interest only and no Principal payments during that time.
I would be talking with your ultimate lender now.
- Member since 2025 · 10 posts · 7 votes1w
@Henry Clark for number purposes: list at 40k, owner wants 20k up front will finance the other 20k. Rehab may be 10k to be operated as a restaurant/lounge. OR is it possible to get a lender for the 40k and pay it upfront to the seller?
- 1wHenry ClarkPro MemberDeveloper · Member since 2020 · 4k+ posts · 4k+ votes
OP. Based on your info, I wouldn't do the building purchase or the Deal (restaurant/lounge).
For this price your talking small market.
Restaurant/Lounge is a tough (JOB). Plus your cash flow will be negative for a year or more. If this was a GREAT spot, then the price for the location would be higher.
If you can't float this amount up front or readily finance, you don't have the funds to weather the storm. If you already have a day job, then you will lose those funds. This business won't pay you that for a while.
I like to manage RISK. If you move forward I would recommend offering $10,000 up non refundable deposit to be applied toward a purchase. $800 per month for a 12 month lease to be applied to purchase. Then a lease for the remainder applied to the principal. No Interest. Right to renew for x years at the end of the 12 months or to purchase for remainder. Any improvements and upgrades are to stay with the facility except any detachable furniture or equipment. All new vent/exhaust fans, grease traps, sinks, etc to stay. Anything that is built in or will leave a "hole" is to stay.
Check to see if a USDA loan is available, the local bank, and as mentioned SBA.
If it's your dream go for it. I would rather lose this amount of money, which you can recover from, than to have never tried
- 1wG. Brian DavisPro MemberInvestor · Hatboro, PA · Member since 2016 · 3k+ posts · 867 votes
If you’re planning to keep and use the property, I’d look at a few options before agreeing to the seller’s 50% down requirement.
I’d talk to a local commercial lender about an owner-occupied commercial loan and also ask whether they can include the renovation costs in the financing. SBA financing may be worth looking at too, depending on the business and property.
The seller financing is another option, especially if they’re flexible on the down payment or terms. I’d compare the total cost and terms rather than automatically putting 50% down.
Before doing anything, I’d get a detailed estimate of the rehab and make sure the property still makes sense with the purchase price plus the renovation. The renovation can change the economics pretty quickly.
I’d probably talk to 2–3 lenders and let them structure the numbers. You may find there’s a better way to finance both the property and the improvements than the seller’s current terms.
- 1wMark UpdegraffBusiness MemberReal Estate Broker · Rochester, NY · Member since 2010 · 1k+ posts · 704 votes
@Jasmyne Rucker At $40K purchase + roughly $10K rehab, I’d actually spend more time proving the use and opening budget than optimizing whether the first $20K comes from a bank or the seller.
Restaurant/lounge space can be deceptive because a building can be inexpensive while the path to legally opening the business is not.
Before committing, I’d want to know exactly what the intended use requires: permitted use, occupancy, fire/life-safety work, accessibility, parking, bathrooms, utilities, kitchen/ventilation if applicable, insurance, and the actual build-out necessary to open the doors.
Then I’d separate the budget into:
real estate acquisition + building rehab + business build-out/equipment + working capital.
Once you know that number, the financing conversation becomes much easier.
Seller financing on $20K could be wonderfully simple if the terms are good. But a $40K building that needs another $50K–$100K before the business can operate is a completely different deal than a $40K building with a $10K cosmetic rehab.
I’d prove that before worrying too much about who lends the purchase money.
Updegraff Group Realty4.746 Reviews - 1wRonald RohdePro MemberAttorney · Dallas, TX · Member since 2016 · 5k+ posts · 2k+ votes
Id meet with the city to confirm the costs of your rehab. Some non conforming sites can be 2-3x your budget
- 1wDenise SuppleeBusiness MemberRealtor · Willow Grove, PA · Member since 2017 · 991 posts · 647 votes
Since you're planning to use the property and hold it, I'd talk to a few commercial lenders before agreeing to the 50% down. You may have more options than you think, especially if the property will be used by your business and you have a solid plan for the rehab.
I'd also ask the seller if they would finance more of the purchase price or allow some of the rehab costs to be included in the financing. Seller financing can sometimes be more flexible than a traditional lender.
Before you settle on anything, I'd get the property, the rehab budget, and your financing options looked at together. You don't want to put 50% down and then find yourself short on cash to finish the work.
Spark Rental Co-Investing Club582 Reviews - 1wAshish AcharyaBusiness MemberCPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
Jasmyne, on your question about getting a lender for the full $40K and paying the seller in full: it's possible, but less likely than it sounds. Most commercial lenders want 10% to 30% of your own money in the deal, and a $40K loan is below the minimum many banks will write. A local bank or credit union is the most realistic place to ask. If they won't go to 100%, the seller's terms may end up being the better option.
Two things from the tax side as you decide. If any of your share comes from a HELOC or personal loan, the interest can be deductible as a business expense because it's based on how the money is used, not what secures it. That only works if you can trace it, so send it straight to closing rather than mixing it into your personal account.
And when you get the real rehab number, which Mark's right could be well above $10K, keep the bids broken out by trade. Roof, HVAC, interior work, and kitchen equipment are treated differently, and a lot of it may be deductible much faster than the building itself.
INVESTOR FRIENDLY CPA®5240 Reviews - 20hNicholas FloydBusiness MemberNY · Member since 2026 · 273 posts · 93 votes
Jasmyne, that’s actually an interesting deal, especially since the owner is willing to finance part of the purchase. The 50% down payment is pretty significant though, especially with renovations still needed.
I work in business funding, and depending on how your business is structured, there may be options worth exploring, including business lines of credit, business loans, or potentially SBA financing if the property will be used for your own qualifying business operations.
I’d also look into whether you can negotiate a lower down payment with the seller and keep more capital available for renovations.
One question I have is, do you already have an established business generating revenue, or is this property for a new business you’re starting? That could make a big difference in which funding options are available.
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