All Forum Posts by: Doug Smith

Commercial Revenue Generating properties like office buildings, apartment buildings, retail centers, etc (banks call it "CRE" lending) are typically evaluated from their net operating income, not gross. You get a Capitalization Rate (CAP Rate), which equals your annualized return by dividing the Net Operating Income (you had gross in your narrative) by the purchase price. I realize I don't have the actual NOI, but that price sounds super high for the gross income you're stating in your narrative. I was chatting with some of my lending buddies at big banks and they are all backing away from the CRE space including office because operating costs are increasing more quickly than rents. In my home market of Florida, our insurance rates have made it much harder to have positive cash flow on a CRE deal. Be careful the seller isn't unloading a problem on your. There is a saying "if you've been sitting at the poker table for more than 15 minutes and you don't know who the patsy is...then you're the patsy". That being said, I don't have the information I would need to say for certain, but that sounds as if that's a high price for the asset you're considering to buy. I wish you well in your project.

DSCR loans programs are like belly buttons...every lender seems to have them. I think the key is to find the ones that actually have a strong investor/commercial background. There are tons of us that have DSCR programs on here. I would chat with those that you feel you can build a relationship with. You want a lender that will help you grow. Chat with two or three to see who you feel the best about. There are tons of us out there.

Some try to charge an up front fee. We only charge third-party fees like the appraisal and the borrower pays the vendor directly. We don't get paid unless the loan closes.I would be careful with a lender that charges anything but third-party fees. 

What @Chris Seveney said. You'll need to roll it over to a custodian (a company that holds and administers the IRA). Your IRA can borrow, but you have to be careful to not personally guarantee it. We do those types of loans. There are a lot of rules to follow, but make sure you have a great custodian.

Most of us will go even higher...say 85%...but you have to get the property to cash flow at that level. Set the wayback machine a couple of years ago and that was pretty acheivable. Now, with taxes, insurance, and interest higher and rents not keeping up with property values, most investors are putting more down to get the properties above a 1.0X DSCR. 80% is acceptable, but the issue is getting the property to cash flow at the higher amount.

Regarding your lender pool, are you going to residential lenders that happen to dip their toes in the water of DSCR? They end to struggle with it. Go to a lender that actually knows what they are doing and specialize in investor finance.

Good luck to you. 

No. 

We've built, ground-up, several homes and my mortgage company finances tons of new construction projects. What you spent on the land/lots can go towards your down payment and, if you've owned the land for more than 6 months, you can use the value of the property toward the cash injection requirement. Most lenders will vary how aggressive they will get based on the experience of the operator (you), but I don't know any that will lender to someone who's never done a spec build like you're contemplating. You might want to consider using your equity in the land as your contribution to a partnership with someone that brings that sorely needed experience to the table. You can usually get a lender to go 85% of cost or 70% of the As Completed Value for such a project. If you plan on holding, it's then a much easier task to roll it into a DSCR loan. The bottom line is that you'll want to learn from someone for the first handful of deals and progressively take more and more on yourself until you can fly on your own. I wish you luck!

No is an answer. I think more and more people have become "users" and take a mile after they've given an inch. Provided you are sticking to the letter and spirity of your rental agreement, you have to set boundaries People that get indignant over you setting boundaries are not worth worried about. 

There is a saying in business, "If you're sitting at the poker table for more than 15 minutes and you don't know who the patsy is, you're the patsy." I'm not trying to insult you, but the terms "36-Unit Multi-Family" and "First Time Investor" should not go together. I implore you to do one of two things...1) find a partner that's been there, done that, and bought the tee-shirt so you can learn the ropes with someone who knows the pitfalls or, 2) start with a single-family or duplex with the guidance of someone that knows what they are doing. You don't wake up one morning and decide "I'm going to be a brain surgeon today!" You pay your dues and learn. I very much wish you well in your journey, but I would hate to see you jump straight to the NFL. 

I think I would be more worried about the credit than I am about the DUI. I know some good people that have went to dinner, had a couple of drinks, drove home, and got pulled over. Dumb decision that I don't support, but I don't think 1 DUI should be a character killer. On the other hand, I've been a lender for over 30 years and I can say for certain that past predicts the future when it comes to paying bills. Rarely do you see someone with perfect credit all of a sudden have a short-term hiccup (usually due to illness or something like that). The vast, vast majority of the time, it's a pattern. I wouldn't discount that credit report. If you do rent to this person, don't act shocked when they fall behind or don't pay at all. You have to ask yourself "how desperate am I to rent this place? Can I afford to wait?"