Understanding funding process for commercial investment property
I am looking to buy my first commercial investment property. I am new to this process and wanted to understand how I can get funding for it. My portfolio currently has a couple of residential real estate investment. I am planning to do 20% down and looking for 20-25 years term. It’s a retail property and I will be the individual owner. Any suggestion/guidance will be greatly appreciated
[{"id": "gvvfi6i", "text": "Most likely, the lender will want to see a tenant in there already with a lease with lots of term left on it and a good debt service coverage ratio. If the debt service coverage ratio is low, you may have to go up to 25-30% down.", "replies": [{"id": "gvvfuw4", "text": "Ok, I forgot to mention the property is 100% leased with 5 year term left. As for lender, are there any resources which list out different lender and the rates they provide ?", "replies": [{"id": "gvvh6as", "text": "Start calling up all the community banks and local credit unions near the property that will give you loans on that kind of asset.", "replies": [{"id": "gvvlj6z", "text": "This is really good advice.  This is exactly the type of loan those banks need and want to make.  Also they can be flexible on terms depending on the situation and how well they know you.", "replies": [], "depth": 4}], "depth": 3}, {"id": "gvvhs46", "text": "Use a mortgage broker", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "gvvpcd5", "text": "As someone said, a 20-25 year term is not likely so let\u2019s assume that you meant amortization. If the tenants has a leases that matures in 5 years most banks will limit the loan term to the tenant\u2019s lease term. Community banks are more likely to do this loan however the type of asset (retail) will give them concerns unless the tenant is credit rated.  You should have examine the lease to see it there are extension options which could help get a bank comfortable. I have expect that the bank will require a personal guarantee or have you as co-borrower. You said that you would be the borrower however most RE transactions are done using a single purpose entity (SPE) LLC that you own. 20% down might work but you may need some more cash. Put together a good personal financial statement with global cash flow so you can show a bank that you have income streams to support the debt if something goes wrong. Liquidity to direct and contingent debt will be important too.", "replies": [], "depth": 1}, {"id": "gvvtx70", "text": "What part of this big rock do you call home? And where is the asset?", "replies": [], "depth": 1}, {"id": "gvvuogr", "text": "I think you will have a hard time getting it done with only 20% down. Last time I spoke with my bank, they said they need 25+ right now and they wouldn't touch retail. Only industrial, mixed use, and office if there's a lot of term.", "replies": [], "depth": 1}, {"id": "gvw0s35", "text": "You will likely have to put 25 to 30 percent down. Likely longest rate lock will be 10 years, on a 20 year amortization. Interest rate likely low 4 percent.\n\nCommercial loans outside of multi family are not sold to Fannie/Freddie, so have worse terms unfortunately.\n\nBest of luck!", "replies": [], "depth": 1}, {"id": "gvykpaw", "text": "**Here\u2019s why** you will have difficulty achieving your down payment (20%) and term expectations (20-25 yrs) by most CRE bank underwriting. \n\n* Loan amounts for occupied retail are primarily determined by a cash flow calculation called debt coverage ratio (or DCR, CRE is full of acronyms). The minimum DCR for retail is 1.35x, but could (and honestly should be) higher for a first time CRE investor. \n\n* The down payment requirement needed to achieve a minimum 1.35x is usually around 30% or more, but even if it is lower, you\u2019ll still need to put at least 30% down. \n\n* CRE loans are not fully amortizing like a residential mortgage, so the loan will have payments as if it\u2019s on a 25-30 year term, but your loan will be 5 years or less because the loan needs to mature before the lease is up. The maximum loan term I\u2019ve ever seen for retail is 10 years. When the loan matures, the owner just refinances the balloon payment that\u2019s due.", "replies": [{"id": "gvyn3fz", "text": "Thanks, the DSCR for this property is 2.16 with 20% down. That\u2019s why I mentioned 20% in my question.", "replies": [{"id": "gvyoh2o", "text": "The DSCR or DCR isn\u2019t based on your actual cash flow calculation. It\u2019s based on bank underwriting that uses a different interest rate and includes underwriting assumptions for income and expenses.", "replies": [{"id": "gvyp90f", "text": "Good to know, I was not aware of that.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "gvzus7b", "text": "I forgot to mention that this is leasehold property and not fee simple. Does it make it easier or harder to get financing for it ?", "replies": [], "depth": 1}, {"id": "gw9fikb", "text": "Hello, my name is Steve Moore of SMZ Capital Group. I can definitely help you with funding of your commercial property. Please feel free to visit our website at [smzcapitalgroup.com](https://smzcapitalgroup.com) \n\nYou can also email me at [smzcapitalgroup@gmail.com](mailto:smzcapitalgroup@gmail.com) and give me more details about the property. I promise to respond quickly to your request.\n\nRespectfully \n\n&amp;#x200B;\n\nSteve Moore", "replies": [], "depth": 1}]