I want to purchase a 16 unit apartment block for $2.5 million, but I don’t have the money. How can I finance?
Jan 01, 2010
in
Commercial Mortgage FAQ
The most common answer I will probably hear is: "ask the bank". But I need a more detailed answer. Thank you in advance for your help.
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12 comments
Nikki B on January 1, 2010 at 11:36 am
Via a bake sale or prostitution. It’s your call.
Stuart on January 1, 2010 at 11:36 am
Well, as in any purchase, if you want something you can’t afford, you go to someone and ask to borrow the money.
In the case of real estate, you go to a mortgage company. However, there are a bazillion forms that purchasing commercial property require, so your absolute best bet is to get hooked up with a realtor. The realtor will know where to go to get your funding, can walk you through the maze of forms, and generally is a good buy for the money you pay for those services.
Panacea on January 1, 2010 at 11:36 am
The bank absolutely will not loan you money for this.
What you need is something called a hard money lender. These are people who lend you money based on the property. They will analyze the property you are interested in and lend you a reasonable amount to acquire it, provided the property is able to produce enough money needed to pay for the loan and you have your act together with what is needed to run the property.
These people make their money helping you make your money in good investments.
Finding these is as simple as plugging in the term, "hard money lender" into a search engine.
Pancakes on January 1, 2010 at 11:36 am
Rental property needs at least 20% down payment. If you don’t have it, you probably are not going to get it. Perhaps you can find 2-5 people who will invest in it with you.
bostonianinmo on January 1, 2010 at 11:36 am
Well, you’re not going to get anything much more detailed than to say to apply for a loan. Bank, broker, mortgage lender, whomever, but that’s about it!
jessicaannjiles on January 1, 2010 at 11:36 am
put together a portfolio
of what you plan to do with the
apartments, and how you plan
to market the homes,
and show balance sheets of how
much money you plan to make with
your venture.
put together a good presentation
that is convincing that these apartments
are a place people will want to live
and show how you will be able to
pay back the loan in X amount of
years, and with decent credit
they just might loan you the money.
It will be a business, and the key to
financing every successful business
is a good business plan.
There are many internet resouces for
writing business plans,
and take your ideas to your areas
Small Business Administration,
they will tell you if your plan is in
order. If you have a university in
your area, try their business department
for help as well–there is free help at both
places.
make an appointment with a loan
officer in the bank, and wow them
with the presentation.
Jacque w on January 1, 2010 at 11:36 am
I know a bit of the process, and it isnt pretty. You will need approx 40% or more to put down, the bank does not want to become an apartment manager if you default. After tons of feild reviews, rent surveys, and a review of the incoming rents to the out going expenses you have to pay upfront for the bank to request your money from the Federal Reserve. This protects them if you cancel and they are paying the fed for the money you decided not to borrow. I believe the fee is 2% of the loan amount to order the loan docs and the money, plus all the professional reports that were prepared on your behalf. You could not borrowe the 2.5 million but if you could it would require a fee of $50,000 for the bank to draw docs and have the money fronted to close your deal. It is refundable once your loan closes, but I think you are in the same boat as others when it comes to getting 40% down.
To use a mortgage broker, they must charge you because banks do not pay rebates on this type of loan. Banks usually dont have a knowledgable person locally to help you apply.
nhan_andy on January 1, 2010 at 11:36 am
Panacea is right . You should try to look for hard lenders , but be prepare for their high interest rate .
Goldenbearloan.com on January 1, 2010 at 11:36 am
Whoa! You guys are even scaring me! Wow. Hey this is the my advice on this subject.
You need 10% down and excellent credit at least 660 range. You can go lower but you will need more down. Beside this you need to have some good personal liquidity or reserveds in your personal account. Personal liquidity meaning stocks/bonds, IRA account extra, extra. Than you need experience. Especially if you want to borrow 100%. How long have you been landlord or owner of Apt. complex? So a good resume is needed. If you have some homes that you rent that works as well.
Apartment complex. Need two years tax returns and profit/ loss statement from the Complex. Need to know at the time how many are vacant Vs how many are occupied. Good inticator to the bank whether this is something they want to lend on.
Hard Money: If you dont want to state your income or fico score than yes Hard Money. If you want to disclose all than yes you do have a fighting chance to get a good rate.
You can even get interest only options and pay option arms.
Just get a package together about the Apartment and yourself. Bring it all to someone who has done these before and settle in for a 2-3 month closing.
Hope this was better advice.
hithere2ya on January 1, 2010 at 11:36 am
You did not say how much you do have.
Ask if there is financing already in place on the property. If yes, ask the balance and if the loan is assumable. If yes to assumable, and you have the balance you now know the equity necessary to buy it.
Lets say the loan balance is $2.1 mil. and you need $400K to assume the debt but only have $100K. Will the seller carry a 2nd for the difference? If yes and you can qualify for the assumption then problem solved.
A concern I have for you: you appear to not be working with a licensed real estate broker who does investment real estate. You really should have somebody looking after your interests even if you have to pay for their services above the sale price, as this will be money well spent.
A licensed broker who does commercial investment properties (includes apartments) could have given this solution and made the deal happen if it could be done. They would also advise you of viable alternative choices in funding if not assumable.
I am happy to refer you to a commercial broker in your market, just send me your contact info and criteria to invest in.
Stacey B on January 1, 2010 at 11:36 am
You only need 10% down and that can be all or in part of a gift.
I am not going to typre you a huge letter like everyone else. If you have additional questions I am a loan officer and would happy to address any concerns.
Reginald Whitcomb on January 1, 2010 at 11:36 am
You should consult with a Mortgage Planner / Broker that works with commercial loans, they will be able to guide you in the right direction and help analyze your situation. They will then be able to shop your needs around to different hard-money lenders who might be able to service your needs.
Most hard money lenders are looking for a 20% down payment, but every lender is different.