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Updated about 4 years ago, 11/06/2020
Commercial Equity Line of Credit? Need Advice.
Hello BiggerPockets!
New to the forums, but not new to the world of real estate investing.
Currently have one SFH out in Jacksonville, FL, but looking to switch markets and go for a more MFH approach.
Was talking to a family member about my wife and my plan to build a MFH/SFH portfolio in the midwest (between St. Louis, MO and Cincinatti, OH at the moment). He tells me that right now his dental office buildings are fully paid off, and he would be willing to lend equity from the buildings to me in order to fund the downpayments for properties. (Buildings are located in San Jose, CA, for those wondering)
I have been searching through the forums and through Google on how this would be possible. From my research, I read that there is a HELOC type of deal with a "commercial equity line of credit" from Wells Fargo, although that is as far as my findings has brought me. I will be continuing my search after posting this ;)
Does anybody have firsthand experience using commercial equity for the type of loan I am talking about? Or does anybody have a better idea to harness the equity from these commercial buildings? Any recommendations to allow me to further research or make connections to make this happen would be appreciated. Thanks BP.
@Josh Espejo I think your best bet is to have your family member with the dentist office speak to several local portfolio lenders in their market (i.e. call small community banks and ask to speak to their commercial lender). I personally recommend staying as far away from big banks like Wells and BOA. Community banks will actually value your business.
If the dentist office is owned free and clear and cash flows well even against a new LOC payment then I don't think you'll have a problem. It likely won't be a super high LTV though. Maybe 65-75% is my best guess.
@Josh Espejo
Bottom line is you need to find a commercial lender. Most lenders you will find are residential lenders... other than local/regional banks and credit unions who will do a business loan on their own books, there are commercial lenders out there.
Good luck.
Originally posted by @Will Gaston:
@Josh Espejo I think your best bet is to have your family member with the dentist office speak to several local portfolio lenders in their market (i.e. call small community banks and ask to speak to their commercial lender). I personally recommend staying as far away from big banks like Wells and BOA. Community banks will actually value your business.
If the dentist office is owned free and clear and cash flows well even against a new LOC payment then I don't think you'll have a problem. It likely won't be a super high LTV though. Maybe 65-75% is my best guess.
Thanks for the reply! I have heard to steer clear of the big banks in general when you're an investor, so noted.
For portfolio lenders, are these also other investors or local banks to the market I'm looking to invest?
I know the idea of portfolio lenders, just not familiar with how to to find them or usual terms for their loans. Are interest rates typically much higher than a home mortgage loan, similar to HML rates?
Originally posted by @David M.:
@Josh Espejo
Bottom line is you need to find a commercial lender. Most lenders you will find are residential lenders... other than local/regional banks and credit unions who will do a business loan on their own books, there are commercial lenders out there.
Good luck.
Thanks for the reply man. That will be next up in my search.
Do commercial lenders in Florida, for example, make loans against property in CA for use in Florida? Or I would find a CA commercial lender against the CA property to purchase wherever? Or does this vary from lender to lender?
@Josh Espejo the portfolio lender is just the commercial or business lender at the bank. They will handle commercial real estate investment loans as well as owner occupant commercial and other business loans.
The terms are usually not as attractive as residential/conventional loans. The last 2-3 loans I've gotten in Columbia are 4.125-4.50%, 20 year amortizations, 5 year balloons. This thread may be helpful: A Case for Portfolio Lending
I think it varies. Obviously, if you walk into a local bank they will tend to serve you "locally." Commercial lenders, ie non-deposit taking lenders, will tend to lend around the country... The point of going to a local / regional bank is to see if they will use their money to loan to you. That's how deposit taking organizations make money, by giving out loans. The smaller banks don't have the wider reach of a larger bank so they are usually more open to originating nonconforming loans.
From another BP post, three national-looking commercial lenders that appear to specialize in real estate are Corevest, LIma One Financial, and Visio Lending. I've never used them. Good luck.