Looking to invest in Commercial RE. Financing?

Question

Hi so I've been investing/managing several small residential units for about 10 years.

I have a family member who is willing to put in $300K cash for investing in a commercial RE property- most likely a multi family in Southern California- Los Angeles area.

I was wondering how much of a loan we could get with this $300K down, very good credit above 800K.

Also I was wondering if I could partner with him with an S Corp or LLP. We were thinking of 80% for him and 20% for me. I wasn't sure if I would do an LLP

What should I do? Anyone recommend a book or resource for multi-family investing where I am the manager/ partial owner and I partner with someone who has more cash.

I could also possibly pull some cash out of my residential properties for this.

Also any recommendations on areas within the Los Angeles area to invest?

Thank you

Darryl Dahlen · Answer

By investing out of state you can no doubt find larger properties where you can get "more bank for your buck".

However, I wouldn't I'd suggest that your first multifamily property be one far away. Isn't part of what you bring to table your management experience? That becomes somewhat diluted if you now have to let a PM company manage your property that's too far away for you personally manage.

Also, keep in mind that for the properties you'll be able to buy you'll need cash-reserves. If neither of you have additional liquid reserves you will need to save some of that 300K. Figure 6-months worth of PITA.

Lastly, you didn't mention your credit score. If you plan on being partners, you need to know that a bank will be looking at BOTH of your tax returns, assets, and credit.

Rich Weese · Answer

Corey- I don't think the Post was asking about hard money. If so, my reply didn't help! Rich

Corey Dutton · Answer

Occupancy of the subject property is the biggest factor in loan to value for a private/hard money lender. If it's 100% occupied, the best you'll get from a private, non-bank lender is 75% of purchase price. Anything above that is usually a scam and they'll try and get a bogus upfront fee from you. Make sure you pay attention to occupancy, as that's one of the biggest determinants for loan to value against such a property.

Rich Weese · Answer

Wil- Here is some additional info for you. I'm in the process of obtaining a refi (which I've mentioned before) on 154 units. I have received final approval and am in the appraisal period on loan. I'm elated with the Bank (in Texas) and the Oficer handling it. I'll share info once loan is completed including name of contact. A couple differences to responses.

The magic % seems to be 25%. You'll have additional forms to sign -for Patriot act, qualification etc if you are 25% or more and not required if you stay at 20%.

LA or not- Tough question. As others pointed out, lousy area to buy in because of rent controls-especially in this escalating rental market. Also, going out of state on your first deal (especially a big one) can be tricky for a novice. Maybe the answer is to try out of state on a smaller scale and get your feet wet first.

You probably won't be able to avoid the 6 months reserves with no experience, but I've worked out a "heloc" type option on my loan with my Bank. Experience makes a big difference for you down the line, so keep that in mind for the future. Proceed cautiosly in all RE deals, imo. Good luck. Rich.

Loc R. · Answer

Within LA (proper), you have rent control - BIG NEGATIVE in my books.  LA is generally speaking a tenant friendly county.

I would look at non-rent controlled cities for properties that are undermanaged and with transitional neighborhoods.  Around my part of town, that would be Northwest Pasadena, Monrovia, Duarte, and Azusa.

Will F. · Answer

Thanks. Anyone else have advice here?

The market in Los Angeles doesn't seem to have good cash on cash return/ cap rates. What are the better areas within LA to invest since it's such a large area? Should I be looking out of state?

Loc R. · Answer

$300k is essentially 30% down on a $1M property.

In So Cal, that *might* get you 5-10 units, depending on where you buy.  Read up on cap rates, rent/purchase price ratio, and cash-on-cash returns here on BP.

Larry K. · Answer

Not sure about the S-corp.  Regarding the financing, probably a 60% LTV, maybe 70.

Looking to invest in Commercial RE. Financing?

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