Commercial RE 101: Any suggestions

[SK in CV]

Nice comment surveyor. Mostly stuff that is consistent with my experience, though much of it only applies to a piece of the commercial real estate market.

But I’m totally confused by this.

[quote=surveyor]Never never never go into an owner financed loan. If you can’t get funding through a commercial lender, don’t buy the property in the first place.

[/quote]

Why not? if the terms are right, once a loan is made, contract signed and recorded, 100% of the leverage is on the side of the borrower. What do you see as the downside?

[surveyor]

anecdotal

It’s what I’ve heard from commercial lenders and also from a few horror stories.

There are not a lot of “distressed” commercial sellers. They tend to be more savvy than most and will usually not sell into a bad deal. These people are usually able to hold on to a property for a long time.

Being commercial, these guys will not agree to a long term deal. They will usually require that the loan be paid off within a few years (3 years to 5 at most). If you go into this type of deal, there is no guarantee that you will be able to find a new loan within that time frame. As investors, we are always optimistic that someone will give us funding but in commercial it is just too risky. If you are not able to find funding in that time, you will be stuck trying to renegotiate with the owner/seller on worse terms or accepting a last minute deal from a commercial lender with not so favorable terms.

If it cash flows terrific, you should be able to find funding. If it isn’t, then the lenders will not want to give you funding anyways. That’s kind of a sign that maybe the deal you have is not so terrific as you thought.

Just my two cents. It happened to me and I was VERY fortunate to find funding. Understand that I’m kind of an easy going person and very positive, but the owner/seller in my case was a total ass and I would not recommend that experience to anyone. Live and learn.

[surveyor]

anecdotal

It’s what I’ve heard from commercial lenders and also from a few horror stories.

There are not a lot of “distressed” commercial sellers. They tend to be more savvy than most and will usually not sell into a bad deal. These people are usually able to hold on to a property for a long time.

Being commercial, these guys will not agree to a long term deal. They will usually require that the loan be paid off within a few years (3 years to 5 at most). If you go into this type of deal, there is no guarantee that you will be able to find a new loan within that time frame. As investors, we are always optimistic that someone will give us funding but in commercial it is just too risky. If you are not able to find funding in that time, you will be stuck trying to renegotiate with the owner/seller on worse terms or accepting a last minute deal from a commercial lender with not so favorable terms.

If it cash flows terrific, you should be able to find funding. If it isn’t, then the lenders will not want to give you funding anyways. That’s kind of a sign that maybe the deal you have is not so terrific as you thought.

Just my two cents. It happened to me and I was VERY fortunate to find funding. Understand that I’m kind of an easy going person and very positive, but the owner/seller in my case was a total ass and I would not recommend that experience to anyone. Live and learn.

[surveyor]

anecdotal

It’s what I’ve heard from commercial lenders and also from a few horror stories.

There are not a lot of “distressed” commercial sellers. They tend to be more savvy than most and will usually not sell into a bad deal. These people are usually able to hold on to a property for a long time.

Being commercial, these guys will not agree to a long term deal. They will usually require that the loan be paid off within a few years (3 years to 5 at most). If you go into this type of deal, there is no guarantee that you will be able to find a new loan within that time frame. As investors, we are always optimistic that someone will give us funding but in commercial it is just too risky. If you are not able to find funding in that time, you will be stuck trying to renegotiate with the owner/seller on worse terms or accepting a last minute deal from a commercial lender with not so favorable terms.

If it cash flows terrific, you should be able to find funding. If it isn’t, then the lenders will not want to give you funding anyways. That’s kind of a sign that maybe the deal you have is not so terrific as you thought.

Just my two cents. It happened to me and I was VERY fortunate to find funding. Understand that I’m kind of an easy going person and very positive, but the owner/seller in my case was a total ass and I would not recommend that experience to anyone. Live and learn.

[surveyor]

anecdotal

It’s what I’ve heard from commercial lenders and also from a few horror stories.

There are not a lot of “distressed” commercial sellers. They tend to be more savvy than most and will usually not sell into a bad deal. These people are usually able to hold on to a property for a long time.

Being commercial, these guys will not agree to a long term deal. They will usually require that the loan be paid off within a few years (3 years to 5 at most). If you go into this type of deal, there is no guarantee that you will be able to find a new loan within that time frame. As investors, we are always optimistic that someone will give us funding but in commercial it is just too risky. If you are not able to find funding in that time, you will be stuck trying to renegotiate with the owner/seller on worse terms or accepting a last minute deal from a commercial lender with not so favorable terms.

If it cash flows terrific, you should be able to find funding. If it isn’t, then the lenders will not want to give you funding anyways. That’s kind of a sign that maybe the deal you have is not so terrific as you thought.

Just my two cents. It happened to me and I was VERY fortunate to find funding. Understand that I’m kind of an easy going person and very positive, but the owner/seller in my case was a total ass and I would not recommend that experience to anyone. Live and learn.

[surveyor]

anecdotal

It’s what I’ve heard from commercial lenders and also from a few horror stories.

There are not a lot of “distressed” commercial sellers. They tend to be more savvy than most and will usually not sell into a bad deal. These people are usually able to hold on to a property for a long time.

Being commercial, these guys will not agree to a long term deal. They will usually require that the loan be paid off within a few years (3 years to 5 at most). If you go into this type of deal, there is no guarantee that you will be able to find a new loan within that time frame. As investors, we are always optimistic that someone will give us funding but in commercial it is just too risky. If you are not able to find funding in that time, you will be stuck trying to renegotiate with the owner/seller on worse terms or accepting a last minute deal from a commercial lender with not so favorable terms.

If it cash flows terrific, you should be able to find funding. If it isn’t, then the lenders will not want to give you funding anyways. That’s kind of a sign that maybe the deal you have is not so terrific as you thought.

Just my two cents. It happened to me and I was VERY fortunate to find funding. Understand that I’m kind of an easy going person and very positive, but the owner/seller in my case was a total ass and I would not recommend that experience to anyone. Live and learn.

[SK in CV]

[quote=surveyor]anecdotal

It’s what I’ve heard from commercial lenders and also from a few horror stories.
[/quote]

All makes sense. Which is why I said “if the terms are right…”.

If a seller is willing to carry paper AND the terms are equal to or better than what is available in the open market, there is no downside. And the thing is, in many commercial lending markets there have been many time periods where there simply was no such thing as fully amortized loans. They were all due in 3-10 years. I believe, with only minor exception, that is still the case today pretty much across the board. The markets I’ve been most in touch with over the last 6 months, which is big apartments and public storage (and to a lesser extent office buildings), I know thats the case. Ten years is about the best available, and sometimes that’s hard to find. Same is true even if it’s commercial owner-occupied, unless the SBA is involved.

[SK in CV]

[quote=surveyor]anecdotal

It’s what I’ve heard from commercial lenders and also from a few horror stories.
[/quote]

All makes sense. Which is why I said “if the terms are right…”.

If a seller is willing to carry paper AND the terms are equal to or better than what is available in the open market, there is no downside. And the thing is, in many commercial lending markets there have been many time periods where there simply was no such thing as fully amortized loans. They were all due in 3-10 years. I believe, with only minor exception, that is still the case today pretty much across the board. The markets I’ve been most in touch with over the last 6 months, which is big apartments and public storage (and to a lesser extent office buildings), I know thats the case. Ten years is about the best available, and sometimes that’s hard to find. Same is true even if it’s commercial owner-occupied, unless the SBA is involved.

[SK in CV]

[quote=surveyor]anecdotal

It’s what I’ve heard from commercial lenders and also from a few horror stories.
[/quote]

All makes sense. Which is why I said “if the terms are right…”.

If a seller is willing to carry paper AND the terms are equal to or better than what is available in the open market, there is no downside. And the thing is, in many commercial lending markets there have been many time periods where there simply was no such thing as fully amortized loans. They were all due in 3-10 years. I believe, with only minor exception, that is still the case today pretty much across the board. The markets I’ve been most in touch with over the last 6 months, which is big apartments and public storage (and to a lesser extent office buildings), I know thats the case. Ten years is about the best available, and sometimes that’s hard to find. Same is true even if it’s commercial owner-occupied, unless the SBA is involved.

[SK in CV]

[quote=surveyor]anecdotal

It’s what I’ve heard from commercial lenders and also from a few horror stories.
[/quote]

All makes sense. Which is why I said “if the terms are right…”.

If a seller is willing to carry paper AND the terms are equal to or better than what is available in the open market, there is no downside. And the thing is, in many commercial lending markets there have been many time periods where there simply was no such thing as fully amortized loans. They were all due in 3-10 years. I believe, with only minor exception, that is still the case today pretty much across the board. The markets I’ve been most in touch with over the last 6 months, which is big apartments and public storage (and to a lesser extent office buildings), I know thats the case. Ten years is about the best available, and sometimes that’s hard to find. Same is true even if it’s commercial owner-occupied, unless the SBA is involved.

[SK in CV]

[quote=surveyor]anecdotal

It’s what I’ve heard from commercial lenders and also from a few horror stories.
[/quote]

All makes sense. Which is why I said “if the terms are right…”.

If a seller is willing to carry paper AND the terms are equal to or better than what is available in the open market, there is no downside. And the thing is, in many commercial lending markets there have been many time periods where there simply was no such thing as fully amortized loans. They were all due in 3-10 years. I believe, with only minor exception, that is still the case today pretty much across the board. The markets I’ve been most in touch with over the last 6 months, which is big apartments and public storage (and to a lesser extent office buildings), I know thats the case. Ten years is about the best available, and sometimes that’s hard to find. Same is true even if it’s commercial owner-occupied, unless the SBA is involved.

[surveyor]

downs

In my case, the interest rate, amortization, payments, LTV, and terms were all superior to what I could get from the commercial lenders (the ones who would give me the time of day). I had a few years to get the loan and I figured I was a shoo in. At the time, I could easily qualify to get a house in San Diego for the same price as the apartment (in excess of 10 units). But I underestimated the lending environment, and how difficult it was to get the commercial loan.

[surveyor]

downs

In my case, the interest rate, amortization, payments, LTV, and terms were all superior to what I could get from the commercial lenders (the ones who would give me the time of day). I had a few years to get the loan and I figured I was a shoo in. At the time, I could easily qualify to get a house in San Diego for the same price as the apartment (in excess of 10 units). But I underestimated the lending environment, and how difficult it was to get the commercial loan.

[surveyor]

downs

In my case, the interest rate, amortization, payments, LTV, and terms were all superior to what I could get from the commercial lenders (the ones who would give me the time of day). I had a few years to get the loan and I figured I was a shoo in. At the time, I could easily qualify to get a house in San Diego for the same price as the apartment (in excess of 10 units). But I underestimated the lending environment, and how difficult it was to get the commercial loan.

[surveyor]

downs

In my case, the interest rate, amortization, payments, LTV, and terms were all superior to what I could get from the commercial lenders (the ones who would give me the time of day). I had a few years to get the loan and I figured I was a shoo in. At the time, I could easily qualify to get a house in San Diego for the same price as the apartment (in excess of 10 units). But I underestimated the lending environment, and how difficult it was to get the commercial loan.

[Author]

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