Are there anymore Active 100% commercial Lenders anymore?

Or even private money lenders? Why not? The money they HAD is still there and we’re still buying properties at discounted prices with plenty of equity! So why stop when you see a great deal in front of you?

4 Units (FULLY RENTED) @ 152k
(1 tenant been there for 9yrs, 2 for 5yrs and 1 for 3 yrs)

Rental Income / yr = $25800 (2 rents $550, 2 rents $525)

Expenses / yr = $7968 (includes ins, taxes & HOA fees)

Exit Strat would be to sell ABOVE or AT market pricing. I’m getting these units BELOW City Assessed price.

The only deal breaker I can see with this scenario is the term sheet. Why wouldn’t a “private Investor” not want to finance this deal?

Better yet, does anyone KNOW any company that does 100% financing still?

First, the assessed price has absolutely nothing to do with market value. With tax bases shrinking as they are in this economy, most cities are reluctant to reduce their assessed values until a property is sold. Even then, it often takes a fight. Thus, many properties can be bought below assessed value. This means nothing.

A 4-plex is considered residential property and will be valued by comps, not by income. This is lucky for you since there will be virtually no net income in the deal you propose:

Purchase price: $152000

0% Down payment: $0

Net Operating Income: $25800/year * 50% expenses = $12900/year

Mortgage: $152000k – $0 down, amortized over 30 years @ 7.0% = $12135/year

Cash flow = NOI – Mortgage = $12900 - $12135 = $765/year

The expenses you report are only 31% of your income ($7968/$25800=31%) and no property can operate that lean over time. It does not appear you included maintenance or vacancy and I don’t know what else, so I assumed a more reasonable 50% in the calculations above.

“… we’re still buying properties at discounted prices with plenty of equity!”

Really? Exactly what discount and how much equity do you think you have here?

This property is hardly the barnburner you suggest. I recommend you get comps for similar properties that have recently sold in the area to get an idea of market value. There is not a lender in the world that would touch this deal under the terms you propose.

Then by all means, show me an example of a good 4 or 6 unit building or maybe a formula THAT INCLUDES DEBT & EXPENSES. With debt service (loan) how can one make money in commercial property? Buy down the debt with LARGE down payments? Or buy the property outright? Help! :banghead

You have to buy the building right. I was just in Pensacola, FL last week and found that a business I knew moved to a new location. They were downtown and now they’re in a small commercial building that USED TO HAVE Hollywood Video on one end, currently has a small Payday Lender in the middle, and they’re on the other end. I asked them how the new location was working out. They said they’re just there because the rent is affordable right now. Everything else out there was way overpriced for the building because people are trying to bring in enough money to cover those huge mortgage payments because they paid too much. They said the owner of their building bought it in 2005 and paid a premium amount for it. Hollywood Video closed down (and it was located in the biggest portion of the building. How do you think that owner is doing now? Buying your cash flow isn’t any better than over-mortgaging your building in my opinion.

TP, reread Equities post. He just gave you a solid aproach to quickly checking if a property has potential.

Also, there are different types of loans for properties four units and less (residential) and five units or more (commercial). Residential loans base the value of the property on Comps of other sold properties and the individuals ability to make the payment for the property. Commercial loans look at the cash flow of the property.

Different investors will have different goals as to how they are investing. It is pretty much guaranteed that you will have to put some money down. In the residential market it could be as low as 3%. In the commercial market it was 20% last winter. Don’t know is it has changed lately.

One indicator that is used quite often is Return on Investment (ROI). The more risk the investment is the higher the ROI you will want to require.

If equity is what you are interested in, can you cover the payments until the property sells. In this case you need to know the residential market in your area.

So guys, what is the percentage of cash flow that you like to see on a commercial rental property? If you put the “standard” 20% down, account for 50% expenses, and assume the typical loan values, etc.

Do you find that you have to lower the purchase price lower than the market values to make a decent cash flow percentage?

I was given rent rolls income for a year of $56,886.97 on a 12 unit apt building built in 1999 which included vacancies. They are asking $439,000.
If we figure the 50% expenses and standard 20% down mortgage, etc.; we would have to offer $395,000, put $79,000 down and still only be cash flowing $3,200 a year. Still seems kinda low, but not sure what is acceptable or should I say WORTH the time.