Ask away

[Apartment Finance]

Hey everyone,

My name is Beau and I am a commercial loan officer. I deal mostly in Apartment loans but I can also handle strip malls/self storage/etc.

I just wanted to offer my exp and knowledge. If you have any questions regarding commercial financing feel free to ask and I will answer to the best of my ability.

[Dan Auito]

Thanks for coming over Beau. I'm going to stick your thread right here at the top so that anyone who wants to go big time doing apartments/mini malls/storage etc... will see your offer to help, front and center! Have a question folks? Beau the answer man is at your service! :SM127:

[ChrisGA]

how do lenders determine the amount they will loan on a large apt complex?

Whom will give 100% financing for these based on the property performance?

What is the criteria for these lenders on these properties for the 100% financing per se on the purchaser vs. properties?

[Jeff Harris]

Hey Chris, maybe Beau didn't like the way you asked your questions. Let me try:

how do lenders determine the amount they will loan on a large apt complex?

Whom will give 100% financing for these based on the property performance?

What is the criteria for these lenders on these properties for the 100% financing per se on the purchaser vs. properties?

See Chris, if you just ask them with a lilt in your voice, you'll get people to respond...hehe

[ChrisGA]

what is lilt? :SM077:

[Dan Auito]

I would say it's a combination of lift and tilt! :SM001:

[Apartment Finance]

On Income producing properties, lenders lend based on the income that it produces. I'm not being a smart ass here, the borrower is important but the property is always looked at before the borrower and the amount loaned is based on that (At least with the more common instituitions).

Most lenders require that a building has a Debt Service Coverage Ratio (DSCR) of 1.2-1.25. What this means is that you take the Gross income, subtract 5% for vacancy(or actual or market which ever is greater) and then subtract expences (not including the mortgage) this is usually about 30-50% or 3k a unit. the lender does this becuase they have to have their exit stradegy, in other words, how much would it cost THEM to run this property if you fell through. They are covering their own butts.

Then you take your yearly payment and divide it into the remainder, if this comes out at 1.2 or greater is should work.

I can explain it in more detail if you want to call me.

I don't know ANY lenders that do 100% financing, Commercial not residential, they just don't exist with anyone I know. I am not saying they can't exist only that I have NEVER heard of one. So if you have a source PLEASE let me know.

The reason they don't? Easy, every lender wants to see you have a vested interest, it makes you more likely to care about what happens if its your hard earned money at stake and not just theirs.

Let me know if this answered your question, also I will put a reminder on my board to check these boards every day so you guys dont have to hang for week again.

If I do forget please shoot me an email asap and I will answer.

[Tom Aston]

However, 100% does not mean "No Money Out Of Pocket". That's the beginning of what people don't understand about "100% Financing"

All commercial financing is based in the income (or potential income) of the property.

100% Financing is never offered. It is negotiated. Lenders don't even call 100% financing "100% financing".

The property HAS to qualify. In some cases GREATER than 100% financing can be achieved...WITH the right property.

You can also negotiate partial recourse and non-recourse.

If anyone wants to learn commecrcial financing, we have a home based business product that teaches the ins and outs of commercial financing as well as 1 on 1 coaching

However, since we can't advertize here, and since most people are skeptical and closed minded because THEY can't obtain that type of financing, I'll just keep it amongst myself and the other students who learn from me............
,

[Dan Auito]

Tom nothing says you can't take the time to tell a few stories which illustrate how your programs have worked for others, it would be wonderful if you would tell the folks how, when they find a property that generates 125% of its obligations that the folks have something that can begin to qualify on its own without their personal funds being used to qualify for the purchase.

Lay out some scenarios and TEACH! Them through some examples of how it is done, Educate prospects to become customers and eventually Clients.

The forum here is your stage Tom. Ladies and Gentleman with no further ado I present to you Mr. Tom Aston who will now show you how others have done the 100% deal! Take it away Tom.:SM127:

[Jim FL]

However, 100% does not mean "No Money Out Of Pocket". That's the beginning of what people don't understand about "100% Financing"

REPLY: True, but cannot people complete 100% financing, and have no money out of THEIR pocket?

All commercial financing is based in the income (or potential income) of the property.

REPLY:
Cool, very cool. After finding this thread, I became thrilled, because frankly, I have a good handle on single family residential and smaller multi unit investing, but commercial is something I'm just now looking into doing on a much larger scale. I thought perhaps some kernels of knowledge could be picked up here, and perhaps help me decide which path to take, or at least look down for learning more and taking action.

100% Financing is never offered. It is negotiated. Lenders don't even call 100% financing "100% financing".

REPLY:
Good. I'd always heard when working with a commercial loan officer at a lender, terms could be negotiated, as there were not preset packages for financing, like with residential single family products........makes sense to me.

The property HAS to qualify. In some cases GREATER than 100% financing can be achieved...WITH the right property.

REPLY:
Sounds wonderful, wish you'd tell us more...........

You can also negotiate partial recourse and non-recourse.

REPLY: I've read something about this before, the idea intrigues me.......non recourse financing? I'd be interested in hearing more about this as well.........tell us more here.

If anyone wants to learn commecrcial financing, we have a home based business product that teaches the ins and outs of commercial financing as well as 1 on 1 coaching

REPLY:
Sure, might be interested, BUT, the next part of your post, well, it kind of rubbed me the wrong way.......sorry of that offends you, but I ALWAYS speak my mind, even online.
I'd love to learn more about commercial financing, but am not really sure what materials if any I'd be interested in, without first learning more 'basics', and perhaps talking to someone online in detail about possibilities etc.
Like I said, I have SFH investing down, do quite well with it, so to get me to take a course, purchase a product or learn from someone, they need to show me what they offer has meat.

However, since we can't advertize here, and since most people are skeptical and closed minded because THEY can't obtain that type of financing, I'll just keep it amongst myself and the other students who learn from me............
,

REPLY:
And this is the part that just stuck out to me, and made me respond at all.
I'll admit, I'm harsh online, sometimes even obnoxious.....but, once I learned of this place, here at magicbullets.com, and participated, I saw a place where people share openly, and for FREE.
That is not to say course materials are not a good idea, or that everything someone needs to invest is here.
I'm just saying, this place is one with a FREE exhange of ideas, and not just trickles of info to tease people into buying courses.
As an author myself, I can tell you, share some ideas, concepts, and teach a little here for FREE.
People will see what you have to offer has merit, and perhaps look into supporting your efforts by perhaps purchasing something from you to get the 'whole picture' as it were.
But, with the tude in that last part........why would we buy something from you?
And I'm NOT trying to argue with you, heck, we don't know each other.......just some friendly advice from someone who has been online for a long time discussing REI, in GREAT detail, for FREE.
The good news about sharing openly, and not 'keeping everything' to yourself (hold some back, this is business of course), is that you'll get in the same action.
I learned over discussing REI for years, there were certain things that were commonly overlooked by others teaching and talking about REI.......and the need was not getting filled.......a large need too.
So, I created a product to fill that need, and it sells well to this day.
Had I not shared online, I would not have learned this, and would have missed the boat........and along the way, I help people at the same time.........its a good feeling.
Maybe you just had a bad day, or whatever........either way, good luck to you, and really, it seems you'd have some great insight to offer us here, so don't be offended, come back, and join in our fun here.

Take care,
Jim FL

[ChrisGA]

I am not a author or promotor except for my things that I do........and projects I try and help my Personal friends on ................. but I can tell you this...........

I think the best way to prove someone that your course is the right course and actually works instead of being lacking like some ........cough, cough........unnamed gurus (supposedly)....

I think Just my opinion is if you taught people just enough info to get 1 deal through............For Free on this GREAT WEBSITE.........then your course would sell itself.............I know if someone was to just point and say the basics I could do the first deal and then I would personally purchase their material.......................

That is why i am a Strong believer in Mr. Legrands courses (not trying to promote or advertise here) He points the way for the first deal or two in his FREE seminar then I did my first 2 deals and spent my profits back on his entire workbook course..........No bootcamps YET BUT I AM GOING THIS YEAR........

Just my opinion, of course only being 23 and I am a full time RE Investor in Savannah dont say too much but I love what I do and enjoy learning about EVERYTHING REAL ESTATE.........TYCOON'S WATCH YALLS REAR HERE I COME

[nicoleferguson]

Just read Chris' response and have to say I agree. (But I have to point out I'm a stickler on grammar and spelling, so that's all I'd encourage him to clean up on. I like to know the person who's handling my money can at least spell the word "expense".)

I'm the COO of a direct commercial lending company. Chris is right on when he stated that 100% financing in the commercial world is pretty much non-existent. Many people don't understand the difference between commercial and residential funding, and why the rules of playing the game are what they are.

So I'm sure you're wondering why they offer 100% residential financing. Simple. You HAVE to have a place to live. You don't HAVE to have a place to work. If you have none of your own money invested in your business, what's to stop you from walking away? You can't really do that with your home, can you? Besides, the average residence is on the market for about 3 months. The average commercial building is anywhere from 9-16 months, especially the big $ ones. And as I'm sure you're finding out, they're much harder to obtain financing for, thus adding to the time it remains on the market. A lender wants to know how long they're going to be stuck with your building before they can unload it if you can't pay the note and they have to foreclose. It’s easy to unload a residence, much more difficult for a commercial building.

And seeing as we're discussing apartment buildings, they tend to get an even lower LTV. Why? Because you can never guarantee occupancy levels, therefore there is an inability to confirm that you can pay the mortgage every month. What if a large plant near the complex closes down, and 15% of your residents work there? They leave. How long does it take to find new tenants? So you're losing money while those units sit empty. Unless you're buying one of these buildings for an absolute STEAL, (and if it were, why is it for sale) then be prepared to be scrutinized. These are typically "higher risk" loans. However, there are many lenders out there who specialize in apartment financing. I always say go straight to the expert, and not the middle man. Maybe I'm biased because we're a direct lender, and I firmly believe too many hands in the cookie jar spoils the deal. I happen to care about what happens to my money, so I’m going straight to the guy/gal who can give me the best answers.

I have a plethora of commercial knowledge, and actually enjoy “coaching” so feel free to send me an email if you have any questions: nicole.ferguson@alg123.com

My husband and I also own a real estate investment company, so I’m very knowledgeable on the topic of “flipping”, as well.

[Dan Auito]

Nicole you're proving to be one great asset to our community here. I really appreciate your willingness to help. It speaks volumes about ones character.

If you have any tutorials or stories on file which can help to illustrate how some commercial deals have been done along with some tricks of the trade, I think everyone would find them fascinating. Thanks again! Dan

[Dan Auito]

The following is from Nicole.

Yes, credit plays a very important role. Typically, with A+ credit, a
borrower can get up to an 85% LTV, without seller contribution. We do have
programs that will allow up to a 90% CLTV. This will reduce as the credit
score becomes riskier.

A tier I property, which is what a multi-family is, (over 5 units) will
usually have the most aggressive LTV.

Regards,



Nicole A. Ferguson

Chief Operating Officer

Riverside, CA Office: 951-715-0084 Ext: 104

White Lake, MI Office: 248-698-1377

Efax: 951-346-9139

nicole.ferguson@alg123.com (nicole.ferguson@alg123.com)



"And in the end, it is not the years in your life that count. It's the life
in your years."

~ Abraham Lincoln

[Cosligwes]

Great information

[skuggi]

Hello!
Its very simple. How can I find investor into small hotel in Costa Rica?

[SPIVALAW]

hello chrisga

[ThreeRiversREI]

Yes, credit plays a very important role. Typically, with A+ credit, a borrower can get up to an 85% LTV, without seller contribution. We do have programs that will allow up to a 90% CLTV. This will reduce as the credit score becomes riskier.

A tier I property, which is what a multi-family is, (over 5 units) will usually have the most aggressive LTV.

Nicole, let me throw some examples out to you, if I may, and let you explain more specifically how the numbers would work, okay?

Was out looking at a property today, 7 unit apartment, in need of a LOT of work to be made habitable. Not clear on what happened for the whole thing to become vacant, but that's it's current state. It's not in the best part of town, but not the worst either. In fact, its an area thats really starting to make a comeback.

For low-ball rents, I looked up what Section 8 would pay. (Still a lower income neighborhood, so that's probably a good segment of the prospective tenant base anyway). "Fair market" would probably be a bit higher, actually. Fully rented, monthly gross income would be $3283.

Numbers I've seen suggest allowing 5% for vacancy & 40% for expenses. That would leave about $1800/month. Ratio of 1.25:1 would leave $1,440 for debt service. What would a "typical" interest rate & term be? (Just some numbers to use for example sake that wouldn't totally unrealistic.) And giving those terms, what initial mortgage balance would $1400/month cover?

Acquisition & rehab costs of $110k. Supposed ARV of $200,000.

What might a "typical" commercial lender expect from an "average" customer if approached for acquisition financing? (I have a HML that might finance this, but wondering if there's an option for construction-to-perm financing.)

What might a "typical" commercial lender expect from an "average" customer if approached to refinance the original financing, including seasoning of ownership, tenants, etc.? And would there be any possibility of cashing out some of the equity?

If I can find numbers that work, this is a neighborhood I may very well end up extensively involved in. The current property mix is about equally abandoned/boarded up, "average" rental quality, and fairly nice fully rehabed/new construction. Lots of SFHs to buy & flip or rent, and 1 or 2 other small (5-10 unit) apartment complexes. And the city is putting some redevelopment money/tax credits out to encourage the turn around to boot!

[nicoleferguson]

Using this property as an example, it would be dead in the conventional commercial world.

I use 30K of deferred maintenance as the breaking point for a commercial loan. Anything other than that will be perceived as construction, finish-up, rehab, etc.

For example, I had a property in Detoit, MI come in about 3 months ago. It was sold in 1998 for 675K. Estimated property value was 1.1MM. I got the appraisal back 3 days ago. Value? $46,700. (No, I'm not kidding!) Apparently the electric was functioning, plumbing wasn't working and so on. Figuring in the deferred maintenance, it killed the value - albeit the exterior structure was still phenomenal.

Keep in mind the resi world is a whole different ball game than the commercial world!

[SPIVALAW]

The last commercial deal I did the owner carried a note so it was 100% financed.

[nicoleferguson]

Private notes have pros/cons:

Pros:
1. You can usually negotiate a much lower interest rate than market rate.
2. You can usually negotiate a higher LTV that what you would get via conventional commerial real estate financing - if the seller is not in a rush to get their money back.

Cons:
1. Typically very short term loans - 12months; 24 months; the longest I've seen is 5. These are also the typical terms of a "Seller's Second". In some cases the seller will do a 15, 20 or 30 year loan, but it's very rare. They usually don't want to wait that long to get their money back.
2. They balloon, which means you're stuck in a situation where you have to refinance. If I had a dollar for every client that came my way HAVING to refi because their private note was coming due - and they're now not eligible for financing, I could retire tomorrow.

Depends on how bad you want the property, and how desperate the seller is to sell.

[SPIVALAW]

Personally, I only do good deals.
If I dont like the price, or loan terms, I don't do deal.
Most sellers need to sell more than I need to buy.

PS you loan $$ in GA?

PSS Do you know Steve Dexter?

[ThreeRiversREI]

Using this property as an example, it would be dead in the conventional commercial world.

I use 30K of deferred maintenance as the breaking point for a commercial loan. Anything other than that will be perceived as construction, finish-up, rehab, etc.

Okay, so for the small apartment buildings I'm finding, that need extensive work, conventional financing won't touch the purchase-rehab. Fair enough, and to be honest, I'm not THAT surprised.

As I said, I have a couple of hard money options that might get this project off the ground. You mention $30k deferred maintenance as the breaking point. So if I get in and get the property fixed up, getting all/most of the units into move-in condition, what more would conventional financing want to refi out of the HML?

Seasoning of property ownership?
Minimum occupancy level?
Seasoning of tennant leases?
More?
And with those minimum requirements, what might I be able to expect for loan terms on the refinance? (Max amount, interest rate, term of loan, etc.) I'm trying to get an idea regarding the ability of the first property to be able to finance the acquisition/repair of the second, and so on.

[nicoleferguson]

Well there ya have it.

A motto to live by...

[SPIVALAW]

PS you loan $$ in GA?

PSS Do you know Steve Dexter?

[nicoleferguson]

I loan in all 50 states.

I may have passed Steve Dexter in the 'halls', but I talk to hundreds of people a day, do nationwide seminars, etc. Tough to keep track of everyone you meet.

[nicoleferguson]

ThreeRivers:

I'll try to make this short and sweet. How I would negoitiate purchasing a property that requires massive rehab work:

Get the seller to finance a private note for 12 months. Sell/buy as a FSBO. Make sure to get an appraisal/inspection for your own good. If you have the cash to do the rehab work yourself, get in the property, do the work and then seek financing once it's completed.

Seasoning isn't an issue w/private notes. It would be structured as a purchase when you seek commercial real estate financing, applying any/all private party payments to your down payment.

Get yourself into a 'stated' loan, using market rents, so rent rolls, P&L/operating statements, 2 years personal/business tax returns become null and void. In other words, an appraiser will pull comps and determine the potential profitability based on those properties. As long as 'like' properties in the area support the value of the property you're buying, you'll be ok. Typical LTV on Tier 1 in the stated world is 85%, with great credit. They're higher risk, less favorable rates/terms, but a much smoother process and a quicker funding time. Find one with a 2 year PPP/2 year fixed. (Because you'll need at least 2 years operating statements to to A-Paper.) Then refi when your property is income producing, and you can get financed based on 'actuals'.

Hope that helps.

[SPIVALAW]

I loan in all 50 states.

I may have passed Steve Dexter in the 'halls', but I talk to hundreds of people a day, do nationwide seminars, etc. Tough to keep track of everyone you meet.


Steve speaks a lot too.
He is a lender in CA and is published.
Just thought you might know him.

[nicoleferguson]

I just took a stroll to Steve Dexter's website. We're pretty different in what we do. I teach people how to obtain financing, not how to buy properties. I also own a real estate investment company, but I don't let the two worlds cross. My company offers licensing programs, which is what I usually educate about. I teach resi brokers to become commercial brokers, and how to understand the commercial world. I teach independent clients how to obtain financing without getting ripped off, and without having to shell out broker fees.

I've never been a big fan of "get rich quick" schemes. I've found that most "seminar junkies" aren't even active in the investment world anymore. They're nothing more than pep-talkers, who fill your head with unreachable dreams. Unfortunately, everyone is so desperate to "make it big", they would listen to a purple hippo wearing a tu-tu if he promised to make them rich. Anyone lecturing that real estate investing is a quick and easy solution to poverty is an idiot. It takes time, money, education and patience. If you go "all-in" from day one, you will end up bankrupt. It's a slow learning curve, that required "dabbing your feet in the water before jumping in!"

Just my opinion, and everyone is entitled to their own.

[ThreeRiversREI]

Hope that helps.

Very much so! And just to make sure I understand your suggestion:

Get seller financing to acquire
When rental ready, refi to a "stated" loan
2 years after THAT refi again to A paper.
Yes?

[SPIVALAW]

LOL
I just wanted to know if you knew Steve.
Thanks for the info