Funding commercial real estate deals can be accomplished in many different ways; from the traditional ways such as conventional bank loans, to more creative techniques such as master lease agreements. Each funding type has its own pros and cons. In addition, certain properties are unable to participate in certain funding approaches due to condition, location or performance. Also, there is a new kid on the block in regards to financing a commercial real estate project and you’ll find out all about that as well. In this video, you’ll discover how commercial real estate deals are funded.
Here is a summary of what you learned in the above video:
Funding Commercial Real Estate Deals:
Residential Properties:
- Single Family homes, duplexes, triplexes
- Lenders look at the buyer first
- Down payment tend to be between 5 and 20%
- Usually mature in 25-30 years
Commercial Properties:
- Apartments of 5 units or more, shopping centers, office buildings
- Lenders look at property first
- Down payment tends to be up to 25 or 35%
- Usually mature in 10 years or less
What do Commercial Lenders Like/Dislike (4:10)
Like
- Properties with solid cash flow
- Greater the cash flow the lower the risk the bank sees
- Evidence of a strong operating history
- Properties in stable and growing neighborhoods
Dislike
- Properties with poor financial history
- Poorly maintained properties
- Properties in suffering markets
8 Most Common Conventional Commercial Loans (5:45)
- Long-term commercial loans
up to 10 years
tend to have higher interest rates - Short term loans
3 years or less
Lower interest rates - Nonrecourse Loans
borrower doesn’t personally guarantee loan
Lower interest rates
Must be a certain amount 2.5-3.5 million dollars - U.S Government Agency Loans
20% of all commercial loans in the US
HUD, FHA, etc
Giverment insures the loan - Construction Loans
Toughest to get approved
Taken out to fund the ground up construction to completion or a certain leasing percentage - Bridge Loans
Short term financing loans to bridge gap between finding and closing on a permanent loan
Usually useful for funding deals quickly - Small Business Loans
SBA insured loans
Lower Down Payment
Lower interest rate - Hard Money Loan
Require hefty down payment
High interest rates
Bad credit is ok
Creative Commercial Financing (9:50)
If you fit under one of these categories this might be a good fit for you
- Little Cash
- Poor Credit
- Want to leverage the money you have
- Need Short term financing
- Seller wants to avoid capital gains
- Seller would have to pay a large penalty for selling before loan is up
- Seller needs to sell ASAP
SECRET to Doing the Best Creative Commercial Financing Deals
- ASK. You have to ask to get these deals
Four Different Types of Creative Commercial Financing Methods (11:23)
- Owner carry first mortgage
If a seller owns the property outright they can act as the mortgager
Seller may not want to pay taxes on the sale
Property may be well below market vacancy and in poor condition - Owner carry second mortgage
The buyer might not have enough saved for the down payment
Seller helps buyer by holding second mortgage for the amount they do not have - Master Lease
No banks required
A lease with option to buy principle
You buy the property, by giving a small or no down payment, in exchange for all rights and privileges of owning the property without actually obtaining the title
Equity title is given
All profits are yours to keep
Seller receives a monthly payment from you - Crowd Funding
A collection of money from backers (the crowd) usually on the internet
Crowd funding websites raised over 5 billion dollars in 2013
Once you find a deal you submit it to the website
If it is approved the website sends your deal to lots of investors to get them on board
Was illegal until 2012
The money goes into an account to be used as a down payment
Investors typically get paid 7-10% return plus a split of the cash flow
Won’t fund 100%
Must be experienced as they reject over 90% of deals submitted
Your training is awesome. Thank-you. But, I think I’m too green and broke to proceed. Having a little real estate experience, I highly recommend your program to anyone with the desire and assets to continue. Thanks.
I have learned a few important things via your post. I might also like to express that there will be a situation in which you will have a loan and do not need a co-signer such as a National Student Support Loan. When you are getting that loan through a standard loan provider then you need to be made ready to have a cosigner ready to allow you to. The lenders may base their decision using a few elements but the main one will be your credit score. There are some lenders that will also look at your work history and determine based on that but in many cases it will hinge on your score.
Peter hi this is vernon.I have a duplex now.It has some equity in it.I am 4yrs from retirement. I WANT TO BUY A 5 PLEX.I’M IN CLEARWATER.FL.CAN YOU HELP ME. MY CREDIT SCORE IS CLIMBING 680.727 520 3932 PLEASE CALL.
Hi Peter, I have taken your commercial RE course on Utemy and it was outstanding! You gave me the basic knowledge to begin my commercial RE career. I’m currently evaluating a 341 unit self storage property in Houston Texas. I’m in the process of obtaining funding for this property. I have contacted a private bank that appears to be interested in self storage properties. I need to supply then with the property Proforma and P&L sheet I obtained from the property owner plus my finalcials. I have seen the property and appears that the current owner in not interested in maximizing the cash flow this property could generate. If you have any tips or suggestions please let me know. Thanks for you emails and videos! I look forward to hearing from you. Robert Bartman at [email protected].
Hello Peter: @ 15’03” you said “percent” when you meant “thousand”.
Thank you for these great videos. Watching them makes the thought of buying apartments less scary. After a person gets a feel for the basics, one may realize that asking owners if they are interested in doing something, is likely the key to it all. Your being there for us is reassuring, and builds confidence in at least one viewer.
I am interested in getting more information about this opportunity on Commetcial property investing and talking to someone. Please call me.
To apply for the Protege Program, go here: https://www.commercialpropertyadvisors.com/protege-program
Your mini seminars were very informative, I am very interested in learning more of your program….
Thank you for your most informative information.
Michael,
Thank you for the knowledge you are sharing with us on the different sources and ways of financing either a residential property deal or commercial property deal.
I was wondering if you can suggest any financing sources from each category you mentioned that you can share with us?
Michael
Yes, what I’ve found the best over the years is to work with a commercial loan broker instead of going to single bank directly. They can in fact, take your deal and shop it to 10 to 20 different banks. Plus, you’ll learn a lot more more of how commercial lending works at its roots. Good luck and great to see you hear!
I’m interested in buying apartments (maybe 20 units or so) , do you know approximately how much money I would need to complete a deal such as legal fees, property inspection using a master lease agreement
Depends on many different factors.
Hey Peter
Thanks for breaking down the different funding options in commercial.
Hello Peter, I’m interested in buying apartments (maybe 20 units or so) , do you know approximately how much money I would need to complete a deal minus the down payment such as legal fees, property inspection ext.
Thank you,
P.S. Keep up all the great work!
Im looking for a coach to help structure deals, I have my funding resources in place please call me
kevin Cockfield
I would like information