Recourse financing seems to be significantly cheaper than non-recourse financing. my question is…is there a way to do recourse financing and then set up some (is there any) insurance or bonding to offset the risk of the recourse financing? Any help would be appreciated.
What is it you are trying to do? Recourse just means that you are personally guaranteeing the deal instead of non-recourse where the property is what is guaranteeing the deal? So you want to get insurance that guarantees you will not walk from a deal? You need to explain a bit more.
I am using a TIC structure with family and friends in order to secure larger properties(storage units, apt complexes etc). Thus my dilemma. I have no problem with recourse financing, however the others insist on non-recourse financing. I understand their concern, however with the rates as they are it is making deals harder to pencil. If I were able to use recourse financing (cheaper money) but offset the risk it would open up so many more properties. LTV’s are running about 70%-80% so even if the property did not perform as projected I don’t see there being much of an issue with recourse. That being said they would like some type of assurance. I would like to find an alternative guarantor, (ie insurance, bond) basically I am trying to think out of the box in order to get cheaper money. Any thoughts would be appreciated.
It’s really a good trick to find a way to make money without any risk whatsoever. Your partners seem to be better suited to money market funds than real estate.
You are going to find that it is very difficult to obtain 80% mortagges on commercial property, even with the very best of circumstances. Most lenders won’t go for it unless you have moire skin in the game than 20%.
If none of the owners have enough faith to put their own neck on the line, you’ve got a problem. You want lots of money and to not be obligated to pay it back? I wouldn’t lend you any money (Although, it’s apparent that I am more conservative than most lenders. There wouldn’t be any sub-prime mess if I had been running the show)
Thank you both for your comments. tatertot I agree with you that my partners are probably better suited for money market accounts. But I still like to use them whenever possible.
I don’t think that trying to lower risk is a bad thing, thus my question. I can already lower the risk by using non-recourse financing, I am just looking for an alternative.
Paying a premium for security is something we all do thats why insurance companies make so much money. I would be willing to pay a premium I would just like it to be cheaper than my current alternative.
If there is no way around it I will continue using non-recourse financing, for the deals where these investors are involved.
Thanks again for your comments.
Non-recourse financing is often available in commercial circles, however it is less prevelant in residential transactions.
Regards,
Scott Miller