Residential Realtor here looking at buying first commercial property. Anyone here have knowledge on commercial mortgages/refinancing?
I have the opportunity to buy a commercial property for well under market value. Specifically, the property is zoned as a "converted residence" and has multiple office spaces which are occupied by car dealers. In my state, all someone needs to be a car dealer is an address, office, filing cabinet, and desk. I am not 100% if it can also be used as a medical office, accounting office, day care, etc. but I'm sure it can. 

I intend to buy the property with a hard money lender- whom I've already spoken to and have a relationship with from previous deals- and then refinancing it. I just have a few questions. 

* If I want to do a cash-out refinance, what would the max LTV be on a property of this nature? 

* Are all commercial mortgages 5/7/10 year loans with a 30 year amortization? Would it be possible to do a regular 15/2/25 year loan on a property like this?

* What kind of interest rate can I expect on this? I understand it will depend on my credit score.

* edit: is it true I have to wait 6 months to refinance?
[{"id": "fh6rb90", "text": "Have you talked to banks?", "replies": [{"id": "fh6rn1l", "text": "&gt;Have you talked to banks?\n\nNot yet. It's not official yet. I just want to have my ducks lined up.", "replies": [{"id": "fh6ry8p", "text": "Banks will be your cheapest source of financing so you should go there before alternative sources of debt financing.\n\nYou\u2019ll look at ~65% LTV with 1.20-1.30x DSCR.\n\nPricing at maybe L+250 to L+350.\n\nTenor is likely to be ~5 years with 30 year amortization.", "replies": [{"id": "fh6tlrg", "text": "&gt; Banks will be your cheapest source of financing so you should go there before alternative sources of debt financing.\n&gt; You\u2019ll look at ~65% LTV with 1.20-1.30x DSCR.\n&gt; Pricing at maybe L+250 to L+350.\n&gt; Tenor is likely to be ~5 years with 30 year amortization.\n\nThanks for the write-up. just a few more questions: \n\nWhy only a 65% LTV? is that \"just how it is\" for properties like this?\n\nBy \"Pricing at maybe L+250 to L+350.\" do you mean LIBOR + 2.50% and LIBOR + 3.50%\n\nwhy is a 5/30 most likely? and towards the end of those 5 years, can I just refinance the remaining balance again? (or would that be stupid)? \n\nI hope I don't come off as argumentative, I just like  knowing the ins and outs of things.", "replies": [], "depth": 4}], "depth": 3}, {"id": "fh6x1sk", "text": "Max you're going to get on a c/o is 60-70, MAYBE 75%.  \n\n&gt;Are all commercial mortgages 5/7/10 year loans with a 30 year amortization? Would it be possible to do a regular 15/2/25 year loan on a property like this?  \n\n\n\nThere's literally no rules in commercial.  You can get whatever you want if you look hard enough.    \n\n&gt;is it true I have to wait 6 months to refinance?\n\n  \nYou never have to wait.  However you might pay out the ass depending on if you do or don't have a prepay. Hard or soft.\n\nOnce you have your purchase agreement and rent rolls or leases, PM me.", "replies": [{"id": "fh96yus", "text": "&gt;You never have to wait. However you might pay out the ass depending on if you do or don't have a prepay. Hard or soft.\nOnce you have your purchase agreement and rent rolls or leases, PM me.\n\nThanks man, will do.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fh6xxue", "text": "With commercial, it is all relative to the property. \n\nThe bank will underwrite the revenue of the property first, as that is the source of repayment. Are the leases strong? Meaning generating sufficient cash flow, after expenses, to hit a debt coverage ratio of 1.25-1.35? The leases will likely need to have at least 5 years remaining in order for the bank to do a 5 year note.\n\nYour fico has little influence on the deal, other than it shows you have managed your personal bills, but you are not paying the Beni, your property holding company is. You will want an LLC for the property, most likely.\n\nYou need to find out the current in place net operating income in order to establish a value for the property. You should call a commercial broker and ask what cap rates are doing for office like this property. You then divide the NOI by the cap rate to determine the value for the property. You can also do DCF method, but that is a different post.", "replies": [{"id": "fh9fjjp", "text": "&gt;With commercial, it is all relative to the property.\n&gt;The bank will underwrite the revenue of the property first, as that is the source of repayment. Are the leases strong? Meaning generating sufficient cash flow, after expenses, to hit a debt coverage ratio of 1.25-1.35? The leases will likely need to have at least 5 years remaining in order for the bank to do a 5 year note.\n\nUnfortunately hard to answer since I don't have the rent rolls. \n\n&gt;Your fico has little influence on the deal, other than it shows you have managed your personal bills, but you are not paying the Beni, your property holding company is. You will want an LLC for the property, most likely.\n\nI'm honestly shocked the FICO score has little influence on the deal, I assumed the banks would want to see 700+ since it's commercial. thanks for the advice on the LLC. \n\n&gt;You need to find out the current in place net operating income in order to establish a value for the property. You should call a commercial broker and ask what cap rates are doing for office like this property. You then divide the NOI by the cap rate to determine the value for the property. You can also do DCF method, but that is a different post.\n\nThis is definitely a top 3 priority. And thank you for the tip on how to determine value.", "replies": [{"id": "fha6fii", "text": "Commercial is very different from residential, and way more interesting! Good luck!\n\nHonestly, if you\u2019re buying you must know:\n\n1) Full trailing 12 month revenue/NOI\n2) Lease details (rent roll with lease expirations at a minimum)\n3) Your needed returns\n\nCapRate is an implied return, you should look at IRR first.\n\nFun stuff!\n\nFWIW, I have analyzed probably close to $2B in multi fam new construction in my brief career. We usually have some retail associated with it to.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fh77txj", "text": "Commercial lender here. Pm me for questions/taking a look at financing. \n\nYes, nearly all commercial loans have a shorter term and a longer amortization. \n\nI can do max 80% LTV in general purposes properties, like this one. \n\nMy rate on say a 5/25 would be around 3.85% today. \n\nMax 25 year amortization. \n\nI waive loan origination fees for redditors, the only closing costs would be property evaluation and title/escrow fees. \n\nI could refinance immediately so long as it\u2019s stabilized and leases in place. \n\nI need 1.25 debt service coverage ratio on the property", "replies": [{"id": "fh7mar2", "text": "Can you PM me your contact info , thanks", "replies": [], "depth": 2}, {"id": "fh9flae", "text": "&gt; Commercial lender here. Pm me for questions/taking a look at financing.\n&gt; Yes, nearly all commercial loans have a shorter term and a longer amortization.\n&gt; I can do max 80% LTV in general purposes properties, like this one.\n&gt; My rate on say a 5/25 would be around 3.85% today.\n&gt; Max 25 year amortization.\n&gt; I waive loan origination fees for redditors, the only closing costs would be property evaluation and title/escrow fees.\n&gt; I could refinance immediately so long as it\u2019s stabilized and leases in place.\n&gt; I need 1.25 debt service coverage ratio on the property\n\nThank you, I'll keep this in mind.", "replies": [], "depth": 2}, {"id": "fi0t9de", "text": "PM sent.", "replies": [], "depth": 2}], "depth": 1}, {"id": "fh7qmp2", "text": "I know this isn't what you asked, but I wanted to add that you should make absolutely sure the property you're looking at is under priced. There is a ton of capital in the market and many investors willing and able to buy properties which makes the market very efficient, reducing the chances something is actually under priced (vs. you're missing something). If you think it's under priced and you're wrong then you're going to be killed by the hard money guy. I'd get an appraisal (not a broker opinion of value) and/or instead of hard money bring in a partner that has experience in the same market and property type. If the appraisal comes back light you dodged a bullet. If it comes in where you think it should then a lender get cheap on you you'll have some ammo to judge them up for your refinance.\n\nThere have been many good responses to this post. I'm reading between the lines a bit and just so you know you won't find an 85 or 90% loan in commercial.", "replies": [{"id": "fh9ew1h", "text": "&gt; I know this isn't what you asked, but I wanted to add that you should make absolutely sure the property you're looking at is under priced. There is a ton of capital in the market and many investors willing and able to buy properties which makes the market very efficient, reducing the chances something is actually under priced (vs. you're missing something). If you think it's under priced and you're wrong then you're going to be killed by the hard money guy. I'd get an appraisal (not a broker opinion of value) and/or instead of hard money bring in a partner that has experience in the same market and property type. If the appraisal comes back light you dodged a bullet. If it comes in where you think it should then a lender get cheap on you you'll have some ammo to judge them up for your refinance.\n\n\nThanks for the advice on getting an appraisal. Because the property is somewhat unique, is there something specific I should look for/ask when I order the appraisal? Or will they figure that out themselves? \n\n&gt;There have been many good responses to this post. I'm reading between the lines a bit and just so you know you won't find an 85 or 90% loan in commercial.\n\nThat makes sense, and I figured that would be the case.", "replies": [{"id": "fh9wfo1", "text": "As far as the appraisal just find a person or company that does a lot of commercial appraisals or even better only commercial appraisals. Don't get someone you know from the residential side. The appraiser will know what to do from there. They may ask what it's for. Just tell them you need to know the value to make sure you're paying the right price. Don't tell them what you can buy it for.", "replies": [{"id": "fh9wwvf", "text": "&gt; As far as the appraisal just find a person or company that does a lot of commercial appraisals or even better only commercial appraisals. Don't get someone you know from the residential side. The appraiser will know what to do from there. They may ask what it's for. Just tell them you need to know the value to make sure you're paying the right price. Don't tell them what you can buy it for.\n\nThank you", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fh7tmu2", "text": "Are you investing in the property or otherwise improving your tenancy? Otherwise, what's the point of a refi with historically low rates?   \n\nI would not recommend a hard money lender unless they're willing to go much, much higher on LTV and their money is only going to be out for a very short period of time.     \n\nGenerally speaking, throw almost everything you know about the residential mortgage process out the window. CRE loans are very different, and banks look at commercial deals very differently.", "replies": [{"id": "fh9f212", "text": "&gt; Are you investing in the property or otherwise improving your tenancy? Otherwise, what's the point of a refi with historically low rates?\n\nI intend to use that in order to pay off my other debts and/or use it towards buying more properties. \n\n&gt;I would not recommend a hard money lender unless they're willing to go much, much higher on LTV and their money is only going to be out for a very short period of time.\n\nI intend to keep it financed with the hard money lender for less than 6 months. \n\n&gt;Generally speaking, throw almost everything you know about the residential mortgage process out the window. CRE loans are very different, and banks look at commercial deals very differently.\n\nLooking forward to finding that out lol.", "replies": [{"id": "fh9lbhu", "text": "So just so I\u2019m clear, what do you expect to change at the property after the first six months? Are you making capital improvements with a plan to improve your tenancy?     \n\nUnless you\u2019re increasing the property\u2019s NOI or the creditworthiness of your tenants, I\u2019m not sure I see the benefit of using short term expensive debt to make the acquisition.", "replies": [{"id": "fh9o3bo", "text": "As far as changes, maybe some aesthetics and a new roof. I do have a plan to increase occupancy (a relative of mine knows some people entering the car business). \n\nI\u2019m only getting a hard money loan because right now, it\u2019s the easiest way for me to get financing.", "replies": [{"id": "fhaonfp", "text": "What sort of rate is the hard money lender charging you, and what does your in-place DSCR look like?", "replies": [{"id": "fhg2lmg", "text": "&gt;What sort of rate is the hard money lender charging you, and what does your in-place DSCR look like?\n\n12% and not exactly sure.", "replies": [{"id": "fhgov62", "text": "Not to come off demeaning, but do you understand how CRE is typically valued? NOI / Cap Rate. It sounds like your building may be vacant so instead you should look at what this space would lease for currently in your market. \n\nThe only way hard money or bridge financing makes sense is if you have a plan to quickly (&lt;2 years) boost the NOI and therefore increase the value. If you can\u2019t do that then you\u2019re going to have a very hard time getting a lender to do a cash out refi. Especially considering banks will most likely be at a lower leverage point.", "replies": [{"id": "fitl43z", "text": "No offense taken. Unfortunately I can\u2019t really calculate the NOI since I don\u2019t have the rent roll.", "replies": [], "depth": 8}], "depth": 7}], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fh805m6", "text": "You might want to check zoning to make sure you can do what you want with it.  Your sentence says \u201cI\u2019m not 100% sure it can be used for....\u201d and then you go on to say \u201cbut I\u2019m sure you can\u201d ... that doesn\u2019t sound like any due diligence has been done.  Good luck... even if you get the financing you\u2019ll want to know about zoning.", "replies": [{"id": "fh9f394", "text": "&gt; You might want to check zoning to make sure you can do what you want with it. Your sentence says \u201cI\u2019m not 100% sure it can be used for....\u201d and then you go on to say \u201cbut I\u2019m sure you can\u201d ... that doesn\u2019t sound like any due diligence has been done. Good luck... even if you get the financing you\u2019ll want to know about zoning.\n\nAbsolutely.", "replies": [], "depth": 2}], "depth": 1}]