After reading a few pages of one of Rich Dad’s books on real estate investing, it sounds like commerical investing might be a good way to go, even though the prices are usually a lot higher than residential units. The reason he states is that the financing will now be based on commerical building’s ability to generate income, rather than my own personal ability. Does this mean that my personal credit would not be jeopardized in the event that something goes wrong? I would imagine though that because of this, commericial loans are tougher to acquire? I’m thinking about 5 unit + apt buildings. Any feedback on this would be appreciated.
Hello,
I am pretty sure that they will look at your credit when you are going to apply for a loan. But major concern for a bank is to make sure that the income from the property can cover the mortgage payments and expences. They like to see the ratio of 1.2 or higher.
PS And I would imagine that it will stay on your credit report if the bank will have to foreclose on the property. In the end, its your name on the loan papers, not your leasees/tenants.
if somebody has a different opinion, please post it here.
Sniper is right. On commercial loans the banks primary concern is the ability of the property to generate income in excess of projected expenses. That being said, in case of a default you can bet your bottom dollar your going to be haunted by the experience for atleast the next 2 years.
You can get a non-recourse loan. This means you as the borrower/buyer will not be personally liable should a foreclosure happen. Of course, you have to have good credit and an established history with property management and ownership of income-producing property. Your best bet is to get a commercial mortgage broker on the phone.
Howdy Riot33:
Keep in mind too some of the extra upfront costs with commercial deals. Here is some info on what I just went thru on a 30,000 foot office warehouse.
Earnest money $1K
Appraisal $1.6K
Structural inspector $1.2K
Environmental Phase 1 report $2.3K
Survey $700
Inspector #2 $1K
It sounds like a master card commercial. All this is at risk of course if the deal falls apart I am stuck paying for all this stuff and who wants a survey of a building in Corpus Christi. Perhaps the seller will buy some of it at a discount. Who knows. The last one I did stuck and hopefully this deal will close too. I stand to profit over $300K so I rolled the dice. Hope it works. and I hope yours works too. LOL
Ted, I didn’t know you are also doing commercial RE as well !!!
Good for you! 
Howdy Sniper:
I just did a 31 unit property and now the 30,000 foot building and looking for more good deals. I thought I had one in Houston but the seller is a hard ball nut case. They wanted a contract with no inspection period. No way to spend thousands on a building that has mold and who knows what else without a contract. Good luck to the buyer.
When this Corpus building is finished I will be on top of the world, but I already am with new twin granddaughters. What a world.
Ted, what material on land wholesaling/development would you recommend ?
PS congrats on your twin grand daughters!!!
Sniper hit on it some. Anything over 4 units is considered commercial. Commercial properties are valued based on the income and their ability to cover the debt load. This ratio is called the Debt Service Coverage Ratio or DSCR.
There is an excellent post describing how to figure DSCR and the ranges for lenders here: http://www.wcrt.org/phpBB2/viewtopic.php?t=1171
There are a few others there talking about Cash Return on Invesment and how to Calculate CAP Rate for a building which is important in valuing it for purchase or sale.
Hope that helps!
hey tedjr just looked at your sig:
Paying 36% interest on 2nd Commercial loans $5000 minimum<<
Are you really paying 36% interest? That just seems insane… :o