HELOC as Down Payment on Commercial Property

[Michael Hayes]

I've seen many in different forums, but still trying to find an exact answer on this. I know a HELOC can be used as the 25% down payment for a residential property, but how would a Commercial Lender view using a HELOC as 25% down payment on a Commercial Property? Excellent credit, > 12 months reserves, net worth greater than the entire purchase price. If money is tied up in other investments and the proposed Commercial property would cash flow with essentially 100% financing, would the lender be OK with this strategy?

[Doug Smith]

I was a commercial banker for 25 years prior to Castle Rock, so I've made thousands of loans. Unfortunately, the answer to your question is that it is going to depend upon the lender. If you can muster brokerage and bank statements that will show an amount that could be liquidated to assist in the pay down, if you aren't "overleveraged", meaning that you don't have a ton in other debt, and your "global" cash flow is strong, they will probably consider it. Global cash flow takes into account not only the revenue from the proposed property, but also your income from all sources. They will want to see your 2017 & 2018 tax returns complete with all supporting schedules from not only you personally, but all other entities that appear on your personal Schedule E's for those respective years. Also, you will want to provide them with a Current Year-to-Date Profit Loss Statement and Balance Sheet for each of these entities. One of the things that they will look for is does the interest paid and debt you are reporting on those returns match what you are telling them you have. They are worried about other things you might owe that they don't know about that might impact your ability to pay. A really big thing they will look for, though, is your "liquid" assets, meaning cash, stocks, bonds, etc that might be liquidated if you get into trouble. Don't be surprised if they require you to move your deposit relationship to them in order to get the loan. I know it isn't a definitive answer, but it really does depend on the appetites of the institution. Banks typically aren't fond of real estate investors, so be prepared for push-back. hope that helps a bit. Good luck.