Can I obtain 100% Financing??

Financing, Hard Money Lenders, Private Money
21

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?

22

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.

Jeff

23

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.

24

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 :slight_smile:

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.
IT’S A GREAT LIFE :slight_smile:

Jeff

25

Jeff,
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?

26

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?

27

If I gave you an exact answer of where to find someone who can broker the note I might be advertising :slight_smile:
but I can help direct you with whatever you need for commercial funding or note buying.

Jeff

28

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.

29

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.

30

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.

Jeff

http://www.crusadercommercial.com/apartment.htm
http://www.crusadercommercial.com/combo.htm