100% commercial financing?

Question

I am hearing that others are getting 100% financing on new purchases, sometimes based on appraisal, not purchase price. Locally, I've called every bank in a 50 mile radius, and everyone has the same answer... 60-80% (depending on the bank), based on purchase price or appraisal, whichever is lower. I just got a contract on some apt building where the properties themselves are clearly worth more than I'm paying for them. If you look at it from a income standpoint, they are worth a LOT more. But I still have to put down 20% based on purchase price. Now I know I would never get an appraisal higher than a purchase price, that's just how it is around here. But I do not want to keep having to put down 20%! Any suggestions with the commercial bank loans?

Don Konipol · Answer

As a private, hard money lender, I can tell you that 100% financing in the hard money industry died around 2008. Just as a side note; although I of course do not know the circumstances of your particular purchase, almost all investors believe they are purchasing a property significantly below market. In actuality, the are purchasing a property at market value in the vast majority of cases. Investors have been successful because either (1) natural price inflation has increased the value of their holdings over time (2) they have repositioned or rehabbed or in some way did something in add value to the property (3) the area they bought in has changed in a positive way lifting all property values in the area. In much fewer cases have investors actually purchased a property significantly below it's "quick sale" value. However, almost all real estate seminars are based on these purchase below market value occurences, and enough have occurred with astounding enough profits to keep the dream alive.

Account Closed · Answer

Bill, where do I go to inquire about the 80/10/10 loan? I have a great building and a seller who would be open to this option.

Paul Klanecky · Answer

Yes, there is 100% Commercial loan but it is only in Canada. Http://www.themortgagestoreonline.com. The only reason 100% financing has become very seldom is because too many People default on their loan and screwed people like me. Now Lending Companies and Private Lenders will require Skin in the Game but Will not guarantee funding. I had clients pay a Down Payment and Underwriting fee and NEVER received funding.

Bill Gulley · Answer

So true Don, buying below market is guru fluff, so a claim can be made that they made money buying it. The only way to buy below market is to buy a property that wasn't on the market. If Jethro tells you granny wants to seel her house and you make an offer and she accepts it. If the sale meets the definition for market value, it doesn't matter what the price was, you paid market value.

Darryl Dahlen · Answer

100% financing in the CRE arena is usually the stuff of scammers who prey on the desperate and inexperienced. On the debt side of the coin anyway. When combined with a seller second, HUD can provide the highest conventional debt leverage, but even, it isn't 100% financing. Not to mention, those loans are for larger projects/loan amounts with experienced borrowers who have deep pockets. You already have a grasp of what most banks are offering so no need to rehash those numbers. As LOC stated, you can sometimes find a private investor to provide the needed funds for a higher return or a good chunk of equity, or both. I believe in most cases even a private investor would want to see some skin in the game or for you to contribute a service such as property management. Otherwise, why would they need you? Also, it is worth mentioning that for a lot of CRE deals you will also need to have reserves in addition to the down payment.

Account Closed · Answer

100% Commercial financing is VERY VERY rare right now. most loans are around 60-80% as you stated. There are cerain private investors out there that may JV with you but you're still going to need to put skin in the game-

Roy N. · Answer

Paul Klanecky: Grapes with a smug thumbs-up and a banner reading "100% mortgage financing" gets you in the door, but don't plan on walking out with one of those mortgages :) I see they are still/again advertising 100% financing on personal homes - a practice the Feds supposedly brought to an end in the past two years.

Robert Steele · Answer

You must be the kind of guy that goes "all in" on every hand of poker.

Kevin Mcfarland · Answer

don't really want to put down 20% in case I screw it up???? What kind of statement is that, I never heard someone say they will not put money up because I may loose it!

Bill Gulley · Answer

Probably, if you are looking for that kind of split, 80/10/10, that may fly up to about 250K, maybe 300K with strong properties, when the borrower has limited assets and really relies on the subject property. As I said "heavy hitters" above, that's one who asks for a loan but can show they don't need a loan. The best thing to look for with personal "limitations" would be seller financing. :)