Commercial Loans - What should I know?

[Gurshan Bansal]

Hi BP!

One of the most valuable resources I've used in my short investing career is seeking advice from people on BP that have gone through the same milestones I am trying to reach! I started my journey during the summer of '19 and I was in what's called the "motion" (James clear has a book called atomic habits that explains motion vs action) phase of my development. I made it a weekly KPI to talk with at least 1 person a week on the phone that I met on BP. It was awesome and I ended up getting my first deal through a wholesaler that I spoke whom I met through another investor... what are the chances ;)

Now I've got a commercial property (5 units) accepted and under contract. I know nothing about commercial loans and I'd like to pull on that resource a few more times just to learn about what I am getting into. To add complexity to this, the property is in Ohio and I am in GA. Finding the bank and THEN getting approved by the bank was challenging because I am out of state so they came at me with these terms: 30% down, 4.51%, 15-year term, fixed for 5 years, then reset every 5 years, FHLB rate + 3.25%, and asked to establish $20k deposit account. The purchase price is around $250 k so I didn't mind paying more down because this thing is a cash cow but I wanted some better terms so I found a local partner through my realtor and we're going in 50/50 on the deal. 

The bank would not budge on loan terms bc my partner's DTI is kind of high (he has 14 units and going through a separate closing) so we're closing the loan under my name then putting it under an LLC. He's bringing 50% cash to the closing table and I decided to partner with someone even though it didn't help me out on the loan front, there is inherent value in working with someone who's 4 or 5 levels ahead of me.

I'm not scared of all this, it's exciting, but I want to be cautiously aggressive and learn where I can limit risk and would like to brainstorm my next 5 moves with someone... anyone interested? 

Gurshan Bansal

[Gurshan Bansal]

Originally posted by @Allan Smith:

So are you asking about loans or what do you mean by your next 5 moves?

My main question is about the commercial loan. What's one or two big things you would have looked into more or asked the bank that you were not aware of the first time going through it. 

From there I wanted to share my next 5 moves (i.e, exit strategies, what to do with tenants in the house, what to repair to get the units from $650 > $850, etc) are to see where holes could be poked.

Hope that clarified it, thanks for the response!