All Forum Posts by: Brian Pinckard

I'm evaluating a retail commercial deal. This is my first dive into the commercial side and to be quite honest I had no intention to be moving this direction after only 3 residential SFH under my belt but the more I look into it the better it sounds.

The property I'm looking at has 5 retail units totaling 6418 sqft. Monthly gross rents are $4770. Other monthly expenses given to me by the listing agent are:

Insurance: $3,000

Taxes: $2862

Landscaping: $600

Misc repairs: $2391

Tenants pay for their own water/sewer and electricity

I talked to a local appraiser and he told me that the rough CapRate in this area is 9. If I add to the supplied expenses another $100 a month for vacancy (I know this is low but it looks like I may be able to get a 10yr lease from the 3 largest units and the location is pretty good) and $200 a month for CapEx (perhaps also low but HVAC is relatively new and there is a metal roof which is relatively new). Using all the numbers above I get a CapRate value just under $500,000. The current asking price is in the high $500,000 range.

I've only spoken with two commercial lenders but one is offering terms of a 25 yr, 10 yr balloon, with 20% down at 5.34. This sounded pretty good and way better than the other lender I spoke with. If I can get it for around $500,000 (and that may be a big if) at the financing terms I mentioned I'd be looking at about $1080 a month cash flow after all expenses and a 12.5% ROI. The DCR would be about 1.45 which also seems pretty solid to me. I did ask the seller if they would consider owner financing to improve the financing even more but that did not fit into their needs.

This all sounds pretty good to me. Would love to hear any advice or comments particularly on the finance terms and if I am missing anything.

Thanks,

Brian

@Brian Napierala, Do you mind giving an example of how DCR and the 1.20 to 1.25 figures work. Do the same rules apply to commercial loans for real estate like retail? Thanks for your time.

Brian

Dillan,

I'm not sure of how different the rules are between Canada and the US.  In the US for residential loans there is a 6 month "seasoning" requirement before you can refinance.  There is an exception to this if you own the property outright but to my understanding in that case the lender will only base the loan on the paid amount, not the appraised amount.  This rule is probably in place in part due to the situation you bring up in your last paragraph. 

Welcome Rich.  City Council and Real Estate agent, great combo.  Best of luck to you.

Brian

If you are eligible you might check out PenFed (think to be eligible you have to be a veteran or related to one).  They do HELOCs on investment properties.  As many properties as you want up to $400,000. 

Great question @Vince Gethings.  Getting the popcorn for this one.

Sorry for the confusion @Nghi Le.  I started at the 5 month mark and finished just a couple weeks after the 6 month mark.  The couple theories suggesting that is how I was able to complete the loan may be correct but it certainly wasn't presented to me that way.  Really looking forward to hearing back from my Mortgage loan officer to clarify.  

@Nghi Le, I just emailed my loan officer to see if she could give me a doc or reference.  I'll let you know what I find out.  The bank was First Citizens so I'm pretty sure it was not a portfolio loan.  I talked to a couple lenders who were pretty adamant you couldn't even start the process before the 6 month mark.  I'm really starting to wonder if they made a mistake by starting me early with the amount I was able to refi.

I agree @Nghi Le.  That link doesn't fully support what I did.  Take a look at this thread, 

https://www.biggerpockets.com/forums/311/topics/515435-brrr-lender-low-seasoning-req

A poster there talks about what I did, although they don't give the supporting document.

@Nghi Le, Here's the link to information about the exception to the 6 month seasoning requirement.  

https://www.fanniemae.com/content/guide/selling/b2/1.2/03.html

As far as switching properties from your name to your LLCs, my understanding is NC passed the law recently which made it so the banks could not call the loan due.  My lawyer said there is activity to try and revoke that law or close the loop hole.  She's pretty sharp but probably not a bad idea to confirm it.