is it true that some commercial lenders will give you a loan (for example : for apartment buildings) soley based on the cash flow of the property and not even consider your personal credit score, personal equity/assets or bank account. i can understand that they would want some equity in the property but it sounds too good to be true.
example : if i find an apartment building with a great NOI and some equity, the lender will give me the loan? if this is true, is there a limit, 1 million , 3 million, 5 million, etc
There’s a limit to how many people can qualify for a 5 million dollar loan based upon their personal income. Even when people have that much income, they aren’t generally showing it as personal income.
Commercial loan is based upon the business, not the business owner. But no, they aren’t going to just hand you the loan. You’re going to have to come up with a minimum of 20% down, and many commercial lenders want 30% down.
Also, it is very common for commercial loans to have a 5 year balloon, so you’d better be darn sure you can pay it off or refinance at the end of that 5 years.
Also, even if the loan is going to be based upon the business, most lenders are going to expect you to show that you can be trusted before they hand you over $5 million. They aren’t going to give money to people with fraud convictions, a credit history that shows you never pay any bills ever, no matter how good the business looks.
You are going to have to be able to purchase insurance, and insurance companies are very reluctant to give large policies to total deadbeats, and your insurance rates are affected by your credit score.
So even though your credit score doesn’t directly affect the loan terms , it’s not like you have found the magic free ride for deadbeats. You still have to convince the banker that you are capable of making the payments on time.
By the way, no limit to how much a large bank will give on a commercial loan. If the project can clearly make the payments, banks seem to really like the bigger projects.
You’ll have to have an awfully well presented prospectus to get a multitude of millions of dollars, but they will give it if you can prove you can make the payments with no problems.
If you are seriously interested, call a local bank and get an appointment with their commercial banker. Sit down with him and discuss what sort of loans he might be able to do with you.
That’s his job, so he won’t mind.
You’ll have to make an appointment. The commercial guy is not hanging around the bank waiting to talk to anyone who just walks in.
thank you guys, this is very good advice, id like to start on a smaller scale of course but a 1 million dollar apartment building sounds like the kind of thing id like to tackle first - still trying to figure out the down payment thing first, i may need a partner or private lender for the downpay, but if the deal is good, the money will follow(so im told)
I’m going to give you one more litle bit of advice.
Tenants can be extremely difficult to manage. A million dollar apartment building might just be a couple of units, or it might be a lot of units, depending upon where you are buying.
A large number of tenants are going to eat an inexperienced landlord alive.
If you want to do residential rentals, I seriously suggest that you start very small, and learn how to control your tenants before you go out and purchase a large number of them and try to do your learning that way.
Tatertot is exactly right. We’ve built up to 35 rentals in 3 years and the tenants will eat you for lunch if your not firm with them. Establish rules of conduct and several payment methods and don’t put up with ANY excuses. If you give an inch they will quickly take their mile.
Just curious, do you all manage your own properties? Why not spend the time to find a good management company to develop a relationship with them? Doesn’t it make more sense to delegate the time spent with tenants to finding more deals? I’m a newbie so I’m curious as to your thoughts.
Also, my credit score is low but I have access to several individuals who do have good credit and assets. Could we set up an LLC and apply for a loan that way?
Just want to add one more bit to all the good information already presented:
There are commercial lenders that still offer what are effectively “no doc” loans (on the parts of the borrowers). Good credit generally is expected, but the lender looks at the property financials, not your tax returns. I’ve seen LTVs as high as 80%. 30y terms and 30y amortization is generally the norm with wholesale lenders. (This is one reason I wouldn’t recommend the local bank if you’re buying an income producing property unless you have a great relationship there.) Availability depends on the details of the transaction.