If I found a commercial apartment that didn’t necessarily need much rehabbing that I wanted to buy and hold, could I purchase it for 65% of the Market value through hard money and pay nothing down.
So the deal (example) would be a 5+ unit property worth $100,000, selling for $65,000. Could I get $65,000 from a hard lender(100% financing) for at least 1 year, with the seller paying closing costs?
Then refinance in 6 months or so with convential financing for 80% of the appraised value. The goal here is to buy commercial apartments with $0 Down.
Is this possible? Thanks!!!
Yes, absolutely possible. If it doesn’t need many repairs, you might be better off going with a bridge loan. I’ll pm you a couple links of commercial hard money lenders that will lend in MN along with a couple very flexible conventional lenders.
Mr. Great or others,
Bridge Loan - mortgage financing between the termination of one loan and the beginning of another loan.
How would the Bridge Loan be used in this senario?
I see you found another bad definition from the glossary. Another name for a bridge loan is an interim loan. They are also used synonomously as commercial hard money, however I see some subtle differences. They are short term, high interest financing until you do whatever it is your planning to do, then selling or refinancing to a permanate loan.
I guess the glossarys definition could mean the termination of the previous owners loan, but that’s not always the case. In your hypothetical, you would use a bridge loan to purchase the property, just like hard money. Typically they are used when your planning some type of improvement (not always construction) and conventional/ permanate financing won’t cover it or won’t cover it fast enough. Such as, condo conversions, development, redevelopment, etc. Often times a conventional lender won’t cover the loan amount until a property is X% occupied, in this case, it could be best to go with a bridge loan until the property is conforming.
The problem is that even if I found a place that is 65% of market value the conventional lenders still want me to put 10% of my money down.
So the HML would be fine with providing 100% of the financing needed with no money down of any kind, as long as I found a great deal that was 65% under market value? So there would be no points paid out of my bank account and I could roll the closing costs into the loan?
With hard money and bridge loans, as long as ALL of your costs are under their required LTV, they usually allow you to roll everything into the loan amount (closing costs, points, fees, etc.). If you get a property cheap enough, you might even be able to roll the monthly interest payments into the loan. This is certainly a viable no-money-down scenario. The properties you’ll be going after will need some kind of help though. After a year or so of you getting the property to where it needs to be then refinancing, you could reasonably have 20% equity in the place using HM or a bridge loan.
Ok. So I find a property that needs a little help and that’s why it is selling for 65% of market value. Then get a HM or bridge loan for the full 65% which will include the points and closing costs, so $0 down. Then after the improvements have been made and I have met the required seasoning requirments for refinancing with a convential lender, I can then refy and be set.
Do you see any flaws in my thinking?
You’ll need to find something selling under 65% of the future market value to allow room for the other costs. I’d shoot for something near 50%. I’ve bought quite a few commercial properties at 25-35% of the ARV (all cash). After they were renovated, I cashed out my money and the new permanate loans are around 60-65% LTV. In your situation, you’d be using hard money in the place of my cash so your LTV on the permanate loan would be about 15% higher to account for HM interest, points, fees, etc. That could still leave you with some nice cash flow all without using a dime of your own money. Seasoning is not an issue with every lender, so refinance ASAP to avoid paying more HM interest than necessary to get the property in whatever condition your going for.
Be forewarned- It’s not easy finding or negotiation to buy a property so low. Construction management knowledge would be mandatory in my example. Property management knowledge would be mandatory if you are going after an ill-managed property (low vacancies, tenants in control, etc). It’s an uphill battle trying to go for no money down deals, but bullets are just as effective shooting up as they are shooting down.
I want a conventional loan now or eventually after a refy. So is the reason that I may want to look at using HML or a bridge loan is because of the looser standards for loans giving out? I’m asking what is the benefit in using a HML if your credit score is good? Is it because a no money down commercial property is possible?
I can get a 90% commercial loan, and a 95% commercial loan if the seller carries a second. So If HML can beat that then I would look further into HML, if not then I might as well just get a stardard loan.
What is the true advantage of using a HML first and then refying with a standard loan Vs. just using a standard loan right away?