OK. I’ve seen all the recent posts about people wanting zero down commercial loans, and I understand they are non-existent.
I have excellent credit (700+ FICO), little income, and some equity in my home. I have the opportunity to purchase an 8-unit apartment building for a little over 200K.
Gross rents are 2700/mo. Utilities run $250/mo. Taxes are $1800 annually.
It needs a little updating, some fresh paint and landscaping.
If I had a partner to front the down payment, what are the chances of obtaining good cash flow financing. Also, say that I wanted to buy the partner out in two years or less. What would refi options be?
Zero down commercial loans are NOT non-existent - far from it. You can easily get 100% of the purchase price IF you that amount is below 70% of the appraised value. The “secret” to getting commercial loans is to have a business relationship with a decision maker at the bank. That means being able to meet with the president, vice-president, chief loan officer, etc. You can find out who this person is at your local REIA (by talking to other successful investors). You may also be able to get an introduction or at least a referrel from one of the successful investors who actually knows the decision maker.
Your bigger problem is that this isn’t a good deal. It will probably have a very minimal positive cash flow once all expenses are considered, but I wouldn’t buy it. It is worth looking into and possibly making a LOW offer, but I wouldn’t pay over $200,000 for this property.
Mike makes some very good points, but I will take him to task on the 100% financing. Sorry Mike…
“You can easily get 100% of the purchase price IF you that amount is below 70% of the appraised value. The “secret” to getting commercial loans is to have a business relationship with a decision maker at the bank. That means being able to meet with the president, vice-president, chief loan officer, etc. You can find out who this person is at your local REIA (by talking to other successful investors). You may also be able to get an introduction or at least a referrel from one of the successful investors who actually knows the decision maker”
These Commercial loans are not “wallstreet” they are portfolio (local banks). These banks do not make a habbit of giving 100% financing to people who “need it”. Say a property is selling for 1 Million and generally the bank will only finance 80%. Well if you don’t have atleast 10% sitting in an account somewhere (preferably one of their accounts) they are not going to give you 100% financing.
Since the inception of the modern banking system (with the exception of some recent developments in micro-lending) banks do not loan money to people who need it.
Howdy ya’ll!!! I am trying to arrange a lunch meeting with a bank founder I met at my church. I don’t want to be too aggressive with this guy, because I genuinely like him as a person. I also don’t want to come across as a leech who just wants to attach and suck. However, I know this guy is a wealth of information and do want to establish a relationship with him. At the time, as Patrick here knows, I am pursuing financing options for 100+ unit apartment complexes. Mike, when you say the key is to establishing a relationship with a decision maker, I completely agree. Starting out in business, I watched as people with less skill and better contacts prospered, while I floundered with a much higher quality service and no contacts. I have since made it a priority of mine to establish key relationships within any industry I am entering. When I meet with this bank founder, do you think I should immediately breach the subject of apartment financing, or should I allow the relationship some time to season? I have already prepped him that I want to talk to him about what I am doing in real estate. Just looking for some outside perspective. Thanks ya’ll!!
I agree with 4EEM to some degree that banks will not loan 100% to people who are needy. You certainly do need to have spotless credit; some money; and a history of performance.
So, I guess the answer to your question is it depends on your situation. If you ask the banker to borrow 100% on a 100+ unit apartment complex and you have no multi-unit experience, no money, and bad credit - I’ll probably be able to hear him laughing here in Ohio. On the other hand, if you have excellent credit; some money; good income; and experience managing multi-unit apartment buildings - then he’ll probably take a serious look at your project.
Do you have a 100+ unit apartment complex that you are working on? If not, you might just be better off getting to know the banker at church. Bankers can’t do a lot with hypotheticals. A big part of their decision regarding a commercial loan will depend on the specifics of the deal. This includes a cash flow analysis, vacancy information, lease information, etc. They will insist on an appraisal and commercial appraisals are very expensive - VERY EXPENSIVE! You will be looking at thousands of dollars for a 100+ unit complex JUST for the appraisal! So, you need to be absolutely certain about the deal BEFORE you commit to spend YOUR money on the appraisal.
I always take a professional looking binder to my meeting with the bankers. In this binder, I have a cover letter, business plan, current RE portfolio, general information and pictures of the proposed purchase, personal financial statement, cash flow analysis (of your existing portfolio and the proposed purchase), current loans, insurance policies, appraisals for existing properties, deeds for existing properties, leases (for existing properties and proposed purchase), tax returns, and a copy of my current credit report. This says to the banker that you are serious and are not just some wannabe. It also keeps the bank from asking you for these documents (again, makes you look like a professional).
Sorry, I just read your other post. Without good credit and a history of successful business experience, I think that you will be wasting your time discussing this deal with the banker. I’d suggest that you just meet him socially and plant a seed until you turn things around.
My honest opinion is that you’ll have a VERY hard time finding anyone to lend you money for a 100+ unit deal. You didn’t say in your post that you have any real estate investing experience and if that is true, you’re taking on an extremely aggressive project as a first project. To be blunt - that sounds crazy to me. Start small and build up experience, credibility, and expertise before trying such a hugh project. I’ve been successfully investing for two years and have more than 30 rentals, but I wouldn’t try a 100 unit complex - not yet.
Thanks for the reply Mike. I guess I am from a different school of thought. To me, it makes less sense for someone to lend me money on a deal with a cashflow, after expenses and debt service, of $500.00 a month, than to lend me money on a deal with a cashflow, after expenses and debt service of $10,000.00 a month. It just seems like it would be a lot harder to screw up the latter. As for my success, I am successful. I have done more than 95% of people alive today and I refuse to back down, regardless of how foolish other people may think I am. Imagine giving up on your dreams because someone thinks you are silly to have them!!! I know you didn’t infer anything by your post; just gave an honest opinion. Like I said, though, we’re from two different schools of thought. I appreciate the added perspective, even if I disagree. Where most people see the potential to fail, I see the potential to succeed. God bless!!
I’ve been investing for about 4 months now. I’ve done only one deal (rehab) which is netting me about 30k. I’m working on my 2nd deal, my 2nd deal is a 24 unit motel. I have dreams and goals, and I think big. In my opinion if the numbers are right then
DO IT!!!
