All Forum Posts by: Brad Stuteville

James,  tell me a little more about your business size.  I set these up frequently for my real estate customers.  Check out a local bank.  They are going to be looking to determine that you have the cash flow to pay it back once termed out... ex:  50K RLOC termed out over 60 months.

Depending on the traditional mortgage program DTI typically needs to be under 50/45%. When you roll the properties/ loans into an entity, and are dealing with a traditional bank you start looking at a DCR (Net Income/Debt service). Typically these need to be over 1.2x.

For leverage the banks are evaluating the Debt to Worth.  They gage the acceptable level by comparing that type of entity to similar peers.

Does that help?

@Bill Gulley is spot on.  On residential typically its a rotation or random selection. 

For commercial ; I'm speaking from the community bank perspective here... there are certain guidelines and each bank has a slightly different policy.  Some larger banks have 3rd parties that blindly bid them out.  Others have a separate department do this.  What is important is having someone completely arms-length from the lending decision be the one to engage the appraiser. 

Other factors include the size and complexity of the appraisal which may effect the size of the available appraisal pool. 

Remember that if there is a serious deficiency in the appraisal that results in an incorrect value (up or down) talk to your lender.  They want to have a correct value as much as you do, and there is a process for correcting these issues and getting a good value.

Depending on their bank and the terms of that note... but often they can owner finance subject to their existing note.  In Texas, I've accomplished this by having their note/DT to you subject to the existing bank loan/lien.

Ok,  Here's what I'd do.  Since you already own the property many banks will (regardless of ownership length) treat it as a re-fi.  So, approach a local bank about a "cash out" (commercial) refi loan against the property to do "renovations and upgrades".  If you sell it right to them and (downplay that you just bought it) they should base everything on the current value.

The appraisal/evaluation is the wild card. Most banks want to be sitting at a 80-85% LTV so we would need a good appraisal to just cash out the fill 70-80K you need for improvements. If this happens, GREAT! You are done.

If the appraisal comes back lower I would treat this as a quasi-construction/ improvement loan. 

You can get a list of your proposed renovations to an appraiser and they can evaluate an ARV appraisal. The bank can then take that number an based on 80-85% LTV you should have plenty of room to cash out all you need. One benefit to this one is that you can also set it up as an Advancing Line of Credit so you make draws and only pay interest on what you are using.

Hope that helps!

Brad

There are some great replies above.  Here's my advice:

• 2/3 years Tax Returns for you individually and the business if in a separate entity
• current personal financial statement
• If you have P&Ls and Balance sheets on the portfolio - bring that.
  • I personally prefer it all consolidated into one rather than separate for each property.  This saves the banker/ underwriter from having to do all this work themselves.
• My preference - don't bring pictures unless the properties are stellar.
• I also really like to see a portfolio rentroll/spreadsheet showing the free cash and DCR for each property either under current terms or the proposed loan.
  • I have one of these templates if you want to PM/Email me for it

Lastly,  Remember that the banker has goals to put on loans... so he/she wants to do the deal also if you can make them comfortable.   Its all about the presentation.  The yes is in the numbers, so present them with numbers that make deal easy.  Stress positive cash flow, good condition of property, low history of vacancy... etc.

Hope this helps!

Brad

What do you think is the as-is value of the property?  What will it comp/appraise out at?

@Thomas Manning is exactly right.  Community banks are typically the easiest way to get these done.  They typically have multiple options available for you.  Whether your solution is going through the secondary market or a commercial loan... they typically offer both of these products in house at competitive rates.