How to Finance a Unique Opportunity

Question

Hello BP Community,

I was out all day today with my father in law searching for our first deal. Originally we were looking for a multi family today. Looked at three properties, all to us were overpriced and needed to much work to be profitable. We are in the northeast Ohio area, and were looking throughout Lakewood for those who are familiar with the area. We didn't like anything we saw today however we were talking with our realtor and came across a property that seems very lucrative. It is located about 15 mins from my home. It is a storage unit facility with 48 units, A SFR for a rental and also a small Apartment that is a separate dwelling from the SFR that could also be rented out. The property definitely needs some work but nothing that can't be fixed. My issue is with financing. The property has been on the market for a long time (over 500 days). The only reason I can see that it wouldn't sell is with the repairs needed and it being a commercial property that financing is going to be tough to obtain. List price is 188k. We could put down 20% or even 25% if need be. Im just wondering where to start and how to approach funding this deal. Any help would be greatly appreciated. Thanks!

Ralph C. · Answer

The bank itself can be a perfect financing route. Think about it.

Daniel Hanson · Answer

@Jerad Miller

I previously did a lot of looking and evaluating on storage units but ultimately decided to go in the residential rentals direction.  A couple key things to know when you are evaluating the purchase of storage units:

• What is the size mix of units (10x10, 10x20, 5x10) etc. 
• What are the nominal rental rates by size of unit, 
• in which size are there vacancies,
• are some of the units flexible so you could convert them into different size units based on your market research
• what is the market rental rate by size of unit.
• Are there any future zoning regulations that would make the property have to be re-done for visual appeal, costing you a lot of money?
• what's the average length that a storage unit is rented in this facility
• how fast can you turn a vacant unit
• what are the local laws regarding evicting a non-paying tenant and disposing of the unit's contents
• is there spare land on the lot that would allow additional expansion by adding storage units
• is advertising primarily by visibility to drive-by traffic and if so do you get enough cars per day?  if not is there another effective method of advertising?

Ralph C. · Answer

@jerad Miller

have you considered inquiring on seller financing?

Marty Johnston · Answer

@Jerad Miller, The multi-purpose property is truly interesting... Just out of curiosity, would you intend to live in an of the units? It sounds like some big potential there. Self-storage is something I'm very interested in myself, but for the future. But as for your dilemma, I'd be happy to talk to you about financing options. Send me a PM with any more questions, I'd love to discuss your deal and lay out potential options with you. 25% down will help you, no doubt. Keep us posted on this.

The real question is, it's been on the market for a year and a half... Why? If it's only due to rehab needs that are achievable, and monetarily smart, why has no one else jumped on this? Anything else about the property that stands out as uniquely difficult or overly burdensome? I can't comment on the area's market, as I'm up in Milwaukee WI area. But shoot me a PM with any questions you have for Commercial financing.

Marty J

Jerad Miller · Answer

Account Closed I just sent you a pm. If the bank falls through I will definitely be in contact with you. Thanks!

Jerad Miller · Answer

Update.

Before I even headed out the door to my bank meeting this morning I got a phone call from the loan officer. She said since the property is a mix of commercial and residential they don't have the ability to loan against it. So I am back at square one! Any help would be appreciated. Don't want this deal to slip away.

Thanks,

Jerad

Jerad Miller · Answer

@Marty Johnston I will definitely keep you all posted. I'm going back to see the property at 11 am tomorrow. Then I have a meeting with a local First Merit branch commercial loan officer. She is working on getting more info on the property between now and then. In the mean time I will be preparing my spreadsheets and data analysis to show the bank that the property will be profitable.

@Brian Person thank you for the input. I would love to connect with you as well as your lender. Never hurts to have a back up plan and I always have projects in the pipeline!

@Stephanie Potter thanks for chiming in. It looks like the units are in decent shape. The residential home is what is in need of repair. Mostly just updating. Not going to go crazy as it will just be a rental property. The storage units are all block not steel construction so that's a plus. With minimal painting and minor repairs they should look new. Also did I mention, there is room to double the amount of units in the property! This has me excited. We could go from 48 to 96 very easily.

Stephanie P. · Answer

@jerad miller

Your best bet will be First Merit.  They don't want to own the property and would probably like to lend money to someone that wants to fix up and manage a non producing asset.

We do loans for storage units properties, but not when the properties need significant work.  Good luck.

Stephanie

Brian Person · Answer

@Jerad Miller,

I am also interested in what First Merit would have to say! If they cannot do a loan for you, I know a commercial lender that covers all of Ohio! They do all types of loan and have a variety of options. I have not inquired about this type of property. However I did ask about a bed and breakfast. The loan officer said they would be able to do that loan. This was for a realtor friend of mine, so I'm not sure if they purchased the property or not! The biggest thing they care about is will the property be profitable! I will PM you there info if you would like! Good luck!

Marty Johnston · Answer

@Jerad Miller, keep us updated  on the property and what you find out. The bank is a great option, if its been sitting on the market a while they may be potentially more inclined to work with you more flexibly... Maybe..

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