What is the best/cost efficient way to get lending on commercial real estate?
Owning commercial real estate has always been a dream of mine. I found a property that I am really interested in. It definitely needs some work but I think it will be a great investment. 5.5mil at 8.8% cap rate (Hopefully can get it for less than 5.5). I was considering leveraging my home or taking equity out on the home to use as a 25% downpayment on the property. What are all your thoughts on this method and what lending is out there that would be best for this journey?
[{"id": "hzv4asr", "text": "I\u2019m Nolan, I\u2019m a direct lender with Forbix for both residential and commercial real estate. I\u2019m helping another borrower do exactly the same thing right now. Would love to get some pricing and options for you. I\u2019ll send you a direct message.", "replies": [], "depth": 1}, {"id": "hzv4p04", "text": "If you go down the route of getting a HELOC to cover the down-payment. Just make sure your cashflow will still be strong with that loan. I\u2019ve seen quite a few people use this method so it\u2019s not rare to go this route. \n\nAlso, try reaching out to different credit unions and smaller banks. You might be able to snag a 20% down-payment (we do 20% at my CU).", "replies": [{"id": "hzx7rbn", "text": "Thank you so much for your response! I am definitely looking at credit unions in my area.", "replies": [], "depth": 2}], "depth": 1}, {"id": "hzvbv60", "text": "You definitely can use a HELOC or a home equity loan for your equity contribution. Just be aware of the difference and that it is wildly expected that the base rate most variable consumer loans are tied to (like a HELOC) is about to increase; potentially multiple times this year.  You will also want that in place before going to a commercial lender (and I would further recommend not using the same lender for both).\n\n&gt;It definitely needs some work\n\nWhat do you mean by that? Is this existing cash flow at 8.8 or offering memorandum 8.8?", "replies": [{"id": "hzvdga1", "text": "Not sure I agree on different lender for the HELOC vs commercial loan. We tend to look more favorably on members/borrowers we consider full-service with our commercial loans and I\u2019d imagine many other lenders in the marketplace do the same.", "replies": [{"id": "hzvhs2i", "text": "What's your institution's legal lending limit?", "replies": [{"id": "hzvis9o", "text": "We\u2019re a \u201csmaller\u201d CU but we can still get up to $20m+ for a borrower (not that we do often). I\u2019d imagine any lender that\u2019d be willing to touch a $4.4m loan would be able to also handle a HELOC in their limits.", "replies": [{"id": "hzvks5w", "text": "It's not about the actual limit. It's about reducing the borrowers risk from the lender.\n\nIf a $1.1MM HELOC sways a credit committee to make a $4.4MM commercial loan the opposite can easily happen where an issue in the commercial facility gets his HELOC cut off; potentially when he needs it the most.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "hzx7auf", "text": "Thank you for getting back to me!  I understand there is a lot of fear in the market right now in general so I am definitely considering waiting it out or taking advantage of the situation if that is possible at all. \n\nThe property itself is a retail shopping strip with 7 strong tenants. It is 100% leased until 2025. One of the tenants was a grocery store, they moved out last year but is still paying rent till 2025 and will not let another grocery store move in till then. The property was last sold in 2002 for 7.5 mil. NOI is currently at about 480k. \n\nSome of the work that needs to get done include: Roof, parking lot, outside mansard beams, HVAC units, groundwater penetration at slab in three locations (The back right corner of one of the units has a hydrostatic leak at the foundation wall during heavy rains.)", "replies": [{"id": "hzxb5ok", "text": "Do any of those 6 (or is 7 with the eighth the dark grocery?) have an co-tenancy clause with the now dark grocery store anchor?  What % of rent does that dark grocer represent when it rolls off in 3 years?\n\nRoof and foundation are not usually cheap repairs.\n\nGrocery anchored retail is pretty hot right now... this listing at a 8.8 cap has *some* hair on it with the dark space and repairs you just listed.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hzvepsj", "text": "Hi there, what type of commercial are we talking about? Office, retail, apartment, industrial? \n\nGenerally I would recommend you find a mortgage brokerage. I personally work on the Lending side of things so I am not one, but a broker will be able to help you find the best fit for a loan of that size. We work with lots of brokers who bring in small commercial deals.\n\nIf you go without a broker I would recommend a CU as they often have very flexible terms that their account people are able to justify as relationship building. \n\nDepends on the geography, property, net worth and other factors but there are lots of reasonably priced options out there for commercial. Even office and retail lending has rebounded a bit over the past few months.", "replies": [], "depth": 1}, {"id": "i0ccg97", "text": "I can help with 20% down LTV (on everything but office) as long as it meets 1.25 DSCR and tenant quality is solid. I can lend in west and Midwest", "replies": [], "depth": 1}]