First time commercial property buyer with financing questions
Hi all - 

I've got an interesting situation and I'm looking for some advice. 

My mom owns a small business and has been renting for the past 20+ years, but is looking to move soon. Her credit isn't very good due to recent medical bills from my sister, and most of her savings was used up as well. I'm looking to purchase a piece of commercial property that we've already picked out and have her rent it from me. It's a small building in a great location with some acreage in the back. I would leave the current building as-is and build a second building on the back lot that will fit her needs. 

We've already been in discussion with the current owners and they will sell for $250,000. We figure it'll be another $70-100k in construction/other costs for a total of around $350,000. We've spoken with the town, builders, and an architect, everything looks doable. 

The main problem here is the financing. The bank wants 25% down for a commercial loan, which is too much for me. However the seller is willing to put down a note for $70k, and is interested in renting the property for a few months after selling. The bank says they won't accept that note as part of the down-payment, I need to come up with the cash on my own. 

I'm in my mid-20's and make around $62k a year, and have around $1,000 a month cash left over after all expenses. I personally have at least $15k in cash available, and my credit is excellent (~770). My mom currently pays over $3k a month in rent, that alone is going to be more than enough to cover the mortgage on this property. Her business is profitable and she's been in business over 20 years. The current owners also want to stay in the original building and rent that for a few months, plus I can always find a new tenant after they leave. 

The only thing that doesn't fit is the down payment, but there will be more than enough cash flow from the tenants to pay off the mortgage plus extra. 

So what financing options do I have at this point? Can I somehow work the note in as part of the down payment? Are there other options available that require less than 20-25% for a commercial loan? This is my first time purchasing property so I'm learning as I go. 

[{"id": "crlrh43", "text": "Hard money lenders will front you that money but they'll want 8%", "replies": [{"id": "cru0bs2", "text": "Try 10-15% and a few points on top", "replies": [], "depth": 2}], "depth": 1}, {"id": "crlrjpv", "text": "I would take your package to a couple more banks.  Not all banks will balk at the sellers note.  The seller would, however, absolutely have to subordinate that note to the bank, or take an unsecured position all together.   If the seller financing is a substantial impact to overall debt service, then it would definitely be a problem.\n\nI wouldn't mention that the owners are intending to only stay a few months.  That would cause me to approach the underwriting as if there was a vacancy.  But if I don't have that info, I just see a month-to-month lease, which is not that uncommon.", "replies": [{"id": "crm1sll", "text": "We've spoken to the owner and they're willing to be subordinate to the bank regarding the note. I'll keep that lease info in mind, thanks!", "replies": [], "depth": 2}], "depth": 1}, {"id": "crlryr5", "text": "Regarding your question on other options - There is a SBA 504 loan program that can be as little as 10-15% down.  The building must be owner-occupied, so you may have to adjust the ownership structure of whatever entity will purchase the property accordingly (to include your mother).  This depends on the square footage of the new building compared to the old as well. You can still rent out a piece of the property and be considered owner-occupied if the portion of the property that is owner-occupied is at least 51% of the total net rentable square feet.  If you google \"Community development corporation\" find one near you and talk to one of their lenders.  A 504 is 50% bank financed, 40% CDC financed, and 10% borrower financed.  A CDC will actually act as a broker for you here, and can use lenders they work with on a regular basis to pre-flight the deal.   This is all assuming it would qualify as owner-occupied though, and that's something you need to figure out first.", "replies": [{"id": "crm1tp4", "text": "I'll look into this thanks!", "replies": [], "depth": 2}], "depth": 1}, {"id": "crls8hx", "text": "In your $350,000 scenario, at 75% financing you're looking at a $1,730ish payment conservatively assuming 5% interest and 20 year amortization.  That alone sounds fine unless your taxes and insurance are ridiculously high.\n\nNow, add a sellers carryback for the 25% down payment and assume the seller only wants to go out 10 years, that's another $920/m, and now the property does not cash flow on your mothers lease payments alone (when including tax, insurance, legal and recurring repairs/maintenance).", "replies": [{"id": "crm1yyw", "text": "I'm hoping to get the loan amount and note payments to be at least or lower than my mom's current rent. That way she won't pay any more money and I'll have at least some income coming from the property.", "replies": [], "depth": 2}], "depth": 1}, {"id": "crlsuai", "text": "what is the draw to this property?  If I am reading correctly you are purchasing a property with a structure you will lease out to the owners for a short period of time, then have to find a tenant for?  \n\nIf you need to build another structure for your mom why not just find one that her business will already work in?  Outside of the financing issue that seems more reasonable to me, and cheaper.  \n\nLike someone else said look at sba.  maybe you can cosign her loan or become a business partner.  \n\nHonestly though at $15k liquid at even 10% down you are talking a 150k property.  I'd be looking for a lease with an option to buy or some seller finance you can get into with like 10k down and have the owner carry the entire thing.  I don't see you having much luck with lenders, even hard", "replies": [{"id": "crm1oll", "text": "We've been looking for properties for about four or five months now with little luck. Either they're too expensive, in a bad location, or falling apart. This place is in the center of town in a really great spot, but is priced lower due to the size and layout of the building in front. It's cheaper to just buy this place and build a building in back exactly how we want it, rather than buying something that's ready to move in. Having the building in front to rent is a bonus.", "replies": [], "depth": 2}], "depth": 1}, {"id": "crlwoeh", "text": "Suntrust (if you have that bank near you) are handing out SBA loans like candy. \n\nThey are offering 100% financing, 20 year term, with competitive interest rates. They will also throw in construction funding and working capital. These terms are available for existing businesses and the mortgage cannot exceed 150% of your current rent. \n\nThis would obviously mean that your mom's business would technically have to buy the building but maybe you could work something out with her. \n\n", "replies": [{"id": "crm1z9e", "text": "I'll give them a call in the morning!", "replies": [], "depth": 2}, {"id": "crmu1r6", "text": "how does that work?  Doesn't the sba require 10% on their side?  I apparently don't have a suntrust within like 100 miles of me or I'd call them lol", "replies": [{"id": "crn652r", "text": "I'm not exactly sure how they collect their fee.  I doubt it's at closing since I have two deals in the works where paying an SBA fee hasn't been mentioned and the banker is pretty on point. Maybe it's amortized? ", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}]