Real Estate Investing Forums

Real Estate Investing => Financing, Hard Money Lenders, Private Money => Topic started by: black95gt on September 22, 2005, 01:53:38 pm

Title: Can I obtain 100% Financing??
Post by: black95gt on September 22, 2005, 01:53:38 pm
I came acrossed a 24 plex for sale in my town here for $750,000.
I am assuming i can get it for $500,000.  But Here is the info on it

Princ. & Interest @ 8.5% = $3900
Taxes @ $13,500 per year or $1125 per month
Insurance @ $300 per month ( I have no clue on this, maybe high, or lower)
Total = $5325 per month out

18 - 2Br units @ $365 ea.  or  $6,570 per month
6 - 1Br units @ $345 ea. or $2070 per month
Total = $8640 per month in
Profit of $3,315

With this said, the realtor told me there is a 10-20% vacancy rate.

So $8,640 * 20% = $1,728 loss
for a total of $6,912 in
for a profit of $1587 per month

I would also raise rent by $20per month since this is under market

what i am needing to know is if i am missing anything.  I am going to do my own management.  I can do most repair work myself, as i do rehab houses also.  My biggest problem is trying to get into this with nothing down.  Can it be done?  I have good credit about 670-700 score.  a decent paying job.  1 other rental house, a house that iam rehabbing to be sold hopefully in the next month or two for a $20,000 profit.  Can anybody give me any advice? am i heading for too deep of water here?  Is the $1,600 profit @ 20% vacancy too little for this complex?  if anybody can help me on financing and other issues, please let me know as i would like to possibly go through with this.

Title: Re:Can I obtain 100% Financing??
Post by: Mdhaas on September 22, 2005, 02:09:15 pm
You should have posted this on the Commercial message board. This is not a conforming scenario.  From what i have gathered commercial lender's are not going to do 100%.  They may allow seller carrybacks to 100%CLTV.

 I will leave this one to Cmacone and the Commercial folks.
Title: Re:Can I obtain 100% Financing??
Post by: JeffInCT on September 22, 2005, 08:35:06 pm
I have spoken to lenders that will do 75% and accept seller seconds to 90% on commercial.  Anything is possible.
Good luck
Title: Re:Can I obtain 100% Financing??
Post by: black95gt on September 23, 2005, 08:00:12 am
so by doing it this way, do you obtain 100% financing then?
Title: Re:Can I obtain 100% Financing??
Post by: Chris2006 on September 25, 2005, 08:48:35 am
Hello, A commercial loan is different from a residential loan. More factors are taken into consideration. Also, the lenders want you to have something to lose to secure the loan other than the project itself.  
Title: Re:Can I obtain 100% Financing??
Post by: wmsg10 on October 05, 2005, 10:01:46 pm
Most Commerical Loans are at 60 to 65 %. If the Realtor told you that the vacancy rate is around 20% and you increasde the rents by 20.00 the rate on vacancy will be closer to 30% It may be a option to Buy on the Deed. Give the sell something and note on another property to have and to hold even if you cant ge the new loan, say for $30K. Next you then pay him $1200 a month for 18 months with Credit toward the purchase price on the $500k Now you have a lower balance to finance. Then increase the rents asap to make your money on the lease. Have the property put into your name and quit claim in back to the seller if all fall down. Now at the end on 13 month go Refi Your property at 70% of the paid down balance
Title: Re:Can I obtain 100% Financing??
Post by: blueprints1971 on October 13, 2005, 10:06:18 am
The highest I LTV Ive seen is 80%.  I dont even know it there is 100% financing on commercial properties.  I know of a bank that will go case by case and up to 90% but I have yet to see anyone actually be approved for 90%.    And of course you will need reserves, etc...
Title: Re:Can I obtain 100% Financing??
Post by: 4EEM on October 13, 2005, 11:58:23 am
90% is easy for class A/1 properties.  I've seen 95% CLTV with seller financing in a very few cases.  100% is just insane!


Hello.  Welcome to The Bank of Patrick.  I understand that you would like  a commercial loan.  

Ahhh.  750 FICO score, that's very impressive, I don't see many of those these days.  

Well now look at the numbers on that property!  That's a little cash cow, huh?  

Now Mr. X, how much do you have to put down on this property?  

You say the seller is willing to do some financing?  How much?  Whatever amount we will not finance!?

You mean you don't have any of your own funds to put into this deal?!?

Yes.  I know the properties numbers are great.
Yes.  You've got excelent credit.
No.  That's not enough.  Where is your PERSONAL investment in this property?  

I should risk my money and my depositers money while all you risk is your credit score!?

I'm sorry Mr. X, but it seems that you are not ready to make a purchase of this kind.  

Perhaps one of your friends or family memebers would be willing to lend you the funds.  

You've already tried that?  They are not interested?  Hmmm.  I wonder why?

When you can invest atleast 5% of your own funds come back and we'll see what we can do.  



Title: Re:Can I obtain 100% Financing??
Post by: black95gt on October 13, 2005, 12:54:19 pm
i dont understand....whats the difference if you loan 100% on a single family home that makes no money, or if you loan on a commercial property that brings in $5,000 profit per month?  why is somebody going to guarentee that they pay you back on the 100% home loan that you gave them?  Please elaborate here Patrick
Title: Re:Can I obtain 100% Financing??
Post by: 4EEM on October 13, 2005, 01:09:16 pm
Different markets.
There is more market demand for residential properties than there is for commercial.   At any given time there are thousands of individuals in a  mid-size to large market that will bid up a residential foreclosure.  Why?  Because they have the funds and the shared desire to own a residential property.

How many people  have the funds and desire to purchase a commercial property at any given moment in your locality?  The bank is not into holding properties.  The bank could be left holding the property for years before they have a buyer for the property.

There are also insurance guarantees on residential properties that do not exist for commercial properties.  Banks are not in business to lose money.

REMEMBER:  If you NEED the money the bank is not going to lend you the money.

If you've got $2,000,000 in your Bank One account and ask them for 100% financing on a $1,000,000 property then you'll get the loan 9 times out of 10.  If you've got $3542.00 in your Bank One account and you ask them for 100% financing on a $1,000,000 property then you will definatly NOT get the loan, but you will be ridiculed 9 times out of 10.

It's just common sense.   Would you lend your money?  And if your answer is "yes", take my advice and don't ever get into lending.
Title: Re:Can I obtain 100% Financing??
Post by: black95gt on October 13, 2005, 01:29:56 pm
thats the thing that i dont understand.....Yeah i realize that if i only have $5,000 the bank isnt going to loan me $1,000,000 and i dont expect them to.  I also understand the different type of markets and the fact that somebody is trying to sell a property that is set up for a Muffler shop, that it is going to be sitting there for quite awhile.  But here is the scenario that i am in.  I have about $5,000 in my bank.  I had the loan and everthing approved on a $250,000 4-plex that would generate me $300-$400 per month.  I backed out of that because of a couple things about the property, but thats besides the point.  Now im at the point where i have a 24-plex, (actually 3 - 8 plexes) that i can get for $500,000 and make about $2,000 per month.  But i cant get the loan because it says its a commercial take out the  Commercial part of it, and i can geta loan for it...well...80/20 anyways.......the same thing happened witha little rehab house i wanted to buy...i needed $25,000 for this house, plus another $5,000 for the rehab. it woulda appraised at around 60-65k.  My local credit union which i have been with for years wouldnt loan me the non-owner occupied property loan without 20% down(which i coulda on this project).  I absolutley did not understand this, still dont.    But every year when i goto them for  $45,000 loan on a brand new pickup, i have the check that day.  That particular incident makes no sense in the fact that the loan was less than half of what the house was worth and they woulda made a nice profit if i woulda been forclosed on, but instead a month later they gave me a loan for my pickup which depreciated 10k the day i drove it off lot.....just cant figure that one out
Title: Re:Can I obtain 100% Financing??
Post by: sniper on October 17, 2005, 03:13:53 pm
black95gt, have you forgotten the maintanence expences? snow removal? management fees? water biil? common area electric bill? etc.
Don't take your REALTOR's word, check his numbers with other REALTORS.
The rent seems too low... is it a bad area?
How is the overall apperwance of the property?
hope this helps.

Title: Re:Can I obtain 100% Financing??
Post by: black95gt on October 17, 2005, 03:22:40 pm
        I do the management, maintanece myself.  I have a plow that i push snow with.  The utilities are all seperate. The common elec, i dont know about.  The outsides of the units have new siding and new roofs.  They seem like nice buildings.  They are not in a bad area, but im not sure what the insides look like.  I am thinking that they need to be very updated as i was in a unit a few years back.  The rent is low because rent in our entire area is not very high.  I live in a 4-plex that is about 5 years old. We have a 2 br 1 bath about 1000sf and then a full finished basement with an attatched garage.  Very nice interior work with nice cabinets appliences, ect. and we only pay $650 per month.  But for now i am scratching the apt. idea
Title: Re:Can I obtain 100% Financing??
Post by: 4EEM on October 17, 2005, 03:23:02 pm
He who has the gold makes the rules.


There is  a secondary market for:
Auto Loans
Commercial Loans
Residential Loans

"...a month later they gave me a loan for my pickup which depreciated 10k the day i drove it off lot.....just cant figure that one out"
1.  Auto Loans are smaller than home loans (in most cases)
2.  The lender can have the full value of the vehical insured (in most cases)
3.  They could have a "buyer" for thier auto loans, but would have to "portfolio" the particular home loan you requested.

Whatever the banks reasoning, it always boils down to the GOLDEN RULE.
Title: Re:Can I obtain 100% Financing??
Post by: black95gt on October 17, 2005, 03:31:12 pm
i guess it doesnt matter.  i am just going to stick with keeping my credit good getting alot of available credit so i can purchase with my CC's or get some kind of Business plan together so that i can establish a good line of credit at a local bank so that i dont have to worry about mortgages. I will just have to start small and work my way up
Title: Re:Can I obtain 100% Financing??
Post by: californiajeff on October 24, 2005, 08:57:03 pm
I like the idea of getting a line of credit and building it up, but is it possible to get a good sized line of credit with a decent interest rate? It would be nice to have a $1,000,000 credit line but at 12% interest that's not gonna be good for buying and holding properties in my opinion.
Title: Re:Can I obtain 100% Financing??
Post by: Chris2006 on October 25, 2005, 08:54:37 am
Hello CaliforniaJeff, How about 6%-9% interest?
Title: Re:Can I obtain 100% Financing??
Post by: californiajeff on October 25, 2005, 11:15:34 am
Hello CaliforniaJeff, How about 6%-9% interest?

Are you offering me an unsecured line of credit? ;D
Title: Re:Can I obtain 100% Financing??
Post by: Chris2006 on October 25, 2005, 11:28:15 am
Hello CaliforniaJeff, No, I am not. There are private money investors that loan with 6%-9% interest.
Title: Re:Can I obtain 100% Financing??
Post by: californiajeff on October 25, 2005, 12:35:39 pm
Thanks for the info. I will have to remember that down the road. I think have such a credit line could come in handy.
Title: Re:Can I obtain 100% Financing??
Post by: papafang on December 26, 2005, 02:24:19 am
No, it is not possible to obtain 100% financing on commercial properties.  However, there are ways of getting around the down payment.  Now, I'm looking into this little strategy as well, so if any one else have done this before, let me know.  

Here's how it works.  
Step 1: argue down the ask price.  Aim for 30%.  Let's say a the ask price is 400k, so you aruged it to 300k.
Step 2: Have a fellow investor sign the contract to buy the property from the seller.  So the investor would agree to pay the seller 300k.
Step 3: You then sign a separate contract to buy the property from your fellow investor for a higher price.  In this case 400k.
Step 4: Find a bank that does not verify downpayment to the seller.  Tell this bank that you are buying a 400k property, but you will be paying 100k from your own sources and need only 300k from them.  At this kind of loan to value ratio, they will agree.
Step 5: Do a double closing.  You get the 300k from the bank, and give it to your "middle man."  You also give him a note for 100k.
He then gives the 300k to the seller, and get the deed.  He then gives that deed to you.
Step 6: A few months down the line, you give say 5k to your fellow investor as settlement for the note.  

Now, I haven't done this before.  There are a few things I am still trying to figure out.  The big one is, what are taxes?  Specifically, will your middle man be paying any tax?  
Title: Re:Can I obtain 100% Financing??
Post by: crusadercommercial on December 26, 2005, 08:09:33 pm
I get so tired of people who don't know what they are talking about giving bad advice.

Yes there is 100% financing of apartment buildings provided they are less then $2,000,000 and you have a fico of 700 or above and there are more than 20 units.
that is for a direct 100%.

If the loan does not meet that criterea, there is anohter way of achieving 100% financing. We do it as a 2 stage loan where we first set you up with an unsecured loan for the down payment and appraisal and then finish the loan as a conventional 80/20 or 90/10.
This method requires a fico of 680 or more and three years in business.

There are some other basic criterea for above loans but the basics are as stated above.

If you need more info on how these work, feel free to email me or call and I will help you any way I can.

I would be very careful with the lengthy advice a previous reply gave. You could find yourself in jail for loan fraud if you attempt to circumvent the system like that, because specific questions are asked on applications that require you to disclose all of the things mentioned, and if you fail to disclose it and get the loan under the false representation of facts, then you will have committed loan fraud.
It is far simpler to simply follow the rules, which I know was your intent. All I suggest is that you let people help you and listen to people that have experience with such areas and not people who tell you about someone they once heard of that knew someone who had a friend that saw somebody they knew get one of those.
Know what I mean?
As for the poster of that advice... This is not meant to be an attack, so please don't take it as such. I realize you are trying to help, but it is important to only answer questions that you have factual and correct information on, because someone might take your suggestion as experienced advice and end up in a ton of trouble.

Title: Re:Can I obtain 100% Financing??
Post by: papafang on December 26, 2005, 11:49:51 pm
As I said in my post, I am looking into this strategy and not saying that is how it should be done.  I also made it very clear that there are things I have yet to figure out even for myself.  This is a "forum" after all.  People run ideas over each other here, right?  

Now, I do have a question.  Have YOU done these deals before?  I'm asking because I do not see your point on it being "illegal."  You are not asking for money back under the table, which is the one big error most investors make these days.  Whether the lender checks to see if you have the 20% or more down payment is completely up to the lender.  The agreement in terms of how the note between you and your middle man should be settled is also completely up to the two of you, and is not illegal in any sense.
So why is this a bad idea?

As for your advice on 100% financing.  Those are indeed very sound advice.  But the qualifications you pointed out are exactly why not every one in this country is buying commercial properties.  Very few people fit those qualifications (3 years in business?  What starting investor has that under his belt?)  What about profit?  I have a credit score of 760 and am a physician.  I've qualified for these loans you mentioned, but ultimately turned them down because the monthly mortgage ate right into any cash flow I had.  
Title: Re:Can I obtain 100% Financing??
Post by: crusadercommercial on December 27, 2005, 06:32:50 am
Good morning,

Question 1- have I done these kind of deals before.
Yes, of course. I'm in the commercial mortgage business. It's no big deal.

Question 2 - The legality of your suggestion... I am not stating that what you are proposing is illegal, I am telling you that you need to be cautious in advising that method as it will very likely turn out that way, because in most loans you are going to be asked where all or some of the down payments etc. is coming from.
Most funding sources want to see that some of the risk is on the borrower and usually that at least 5 to 10% is coming from the borrower's own pocket. So when asked the question as a qualification, you have to disclose it. If you don't it is loan fraud, if you do, you probably won't get the loan from that funding source.

Comment 3- Not everyone is buying commercial property... That is very true, however, this forum is a commercial property forum so my comments are with respect to commercial lending. If we were on a different forum, there would be no discussion on this point as residential 100% loans are an everyday occurence.

Lastly, you are correct. Not everyone qualifies for 100% comercial funding. The basic qualifications are as I stated, but a lot of borrowers do. As for the 3 years in business... I didn't say it had to be in the investment business. It can be in any legitimate existing business.

As for your monthly mortgage eating into your profit.. I don't know how your loan was structured, but as an investor you should be looking at either an interest only loan or better yet, a negative amortization loan. The payments are much lower and the equity still builds in appreciation rather than pay down (which is always the way an investor should be thinking anyway). You refinance everytime your initial period ends to keep monthly payments low and take the equity out for new investments.

Just a comment about your comment... The red flag gets raised anytime a comment is made such as

1- "the way to get around that is..."
2- You made a difinitive statement that there it is not possible to get 100% financing on commercial properties. When you made that a difinitive statement, you made it as a statement of fact, which then took you from the arena of suggestion to that of expert.

Just a final mention. There is another way to accomplish 100% financing if the property is being sold for an amount below the appraised value. The seller can give you a gift of equity which you use as the down payment in the form of a soft second. The property is then sold to you at appraised value instead of below and at closing the the 1st is closed and the note is then purchased in a simultaneous closing by a note buyer at a discount and the seller accepts the discounted amount which brings the cash in the sellers pocket to the original loan amount... and everyone gets what they wanted. The bank is happy, the borrower is happy and the seller is happy. One big happy family :)

Strategies are good, getting around things is not good.

Keep up the good work. Without your suggestion, no one here would ever be exposed to strategies like this. Even a bad idea can bring good responses.

Have a happy New Year. Make a lot of money and do great things...

And don't forget to tithe and help others less fortunate and be grateful for all the blessings God has bestowed on you.

Title: Re:Can I obtain 100% Financing??
Post by: black95gt on December 27, 2005, 07:36:54 am
    Your responses are what i have been looking for.  If you read My first post in this topic, does that sound like something that can be done?  Like ive posted before, i really have no money to put down. I have two SFH's with 11-12% equity in 1, and 30% in the other for a total of about $20,000.  I have Credit score of 675 and should go up in the next couple months since my credit cards no longer carry a balence.  Ive been remodeling houses now for over 1 year and been in the rentals for 6 months.  With this said,  and assuming the apt. complex i am looking at is sold to me for $500,000 and appraises for $750,000.....Does this look like something that can be done?
Title: Re:Can I obtain 100% Financing??
Post by: papafang on December 27, 2005, 08:49:52 am
Thank you very much for your suggestions Jeff.  I will take care to phrase my wording more carefully, as I have no intention of pretending to be an expert.  

The second financing you mentioned in your message is quite interesting.  I do not yet have enough experience with real estate notes in the process of negociation.  Now, coming to an agreement with the seller in terms of a note sounds simple enough, but how do you go about finding a buyer for the note?  
Title: Re:Can I obtain 100% Financing??
Post by: crusadercommercial on December 27, 2005, 01:27:33 pm
If I gave you an exact answer of where to find someone who can broker the note I might be advertising :)
but I can help direct you with whatever you need for commercial funding or note buying.

Title: Re:Can I obtain 100% Financing??
Post by: realdeal1963 on December 29, 2005, 07:05:48 pm
There are a couple ways to get 100% financing.

1) Get the seller to take back a mortgage for the entire amount, assuming the seller has sufficient equity to make it worth his while. Structure the payment in such a way that you still have positive cash flow while giving the seller the maximum interest rate he/she wants.

2)  Get a wealthy investor to finance the deal by buying the property outright.  You then negotiate terms whereby you pay that investor a high monthly interest-only payment until you can refinance the property with a bank that will do the non-conforming loan.  Typically, you'd want to give the wealthy investor a high interest rate and then have the balloon come due in 2 or 3 years so you have adequate time to find a bank that will do this nonconforming loan. Meanwhile, your property is appreciating, so by the time your balloon comes due your LTV might be manageable enough so that a bank will want to underwrite this loan.

Other things to consider:
1) Why is the vacancy rate so high?  Is it in a bad section of town?  Or, could you lower rents on the vacant unit to get the cash flow to pop up?

2) Have you priced out howeowners insurance on a multi-plex of this magnitude?  I've found that for this many units, the price could be high enough to eat up all of your cash flow.

3)  Maintenance-wise, you might want to factor in snow removal since most states by law will require the landlord to provide this for multi-family dwellings.

Title: Re:Can I obtain 100% Financing??
Post by: dwj469 on December 31, 2005, 01:35:42 pm
the moral of the story is,banks are horrible to work with. If you can do owner financing gofor it. Banks do not like investors they do not understand them and they never will.
Title: Re:Can I obtain 100% Financing??
Post by: crusadercommercial on January 03, 2006, 12:08:22 pm
Responding to dwj469..
your suggestion 1-
Although your suggestion of having the seller take back a second to make it a 100% deal works out mathematically, it does not work out in reality. Other than a few 100% programs that we have, Lenders want to see at least 5% and usually 10% of the borrowers own money into the mix. THey want to see some risk assumed by the borrower, so a seller 2nd take back will not create a 100% commercial deal.

Your suggestion 2 - A wealthy investor would be nice, but is also unlikely for the same reasons above. A rich unle may be a better solution.

If you look at the two links below, you will see a few scenarios whereby you can accomplish 100% Commercial financing.
This is not an advertisement, just an explanation of what is required for 100% financing.  Try the two links below for an explanation.
I hope this helps.