Commercial Lending Loopholes?

Question

Hello, I am a WI realtor focusing in on helping multiple clients acquire commercial investment properties outside of just residential investment - (Office Spaces, Motels, Operating Businesses, Etc.)

However, my buyers and myself have been running into a consistent issue - banks requiring 25/30/40 percent down payments on the commercial real estate. This requirement is simply not achievable for some of my newer investment clientele, which is a tough cookie to swallow when a lot of these folks have big dreams and aspirations, and an ability to finance these at a slightly lower rate.

Some people in my network have no issue with this, but for those that want to invest commercial but can’t make the down payments, I am asking the BP community to share any insights on commercial loan loop holes, decreasing down payments, maybe even ‘loaning’ down payments, whatever is feasible.

I know it seems far fetched, but I will always see if there is any possible way to make something happen for my clients no matter the request. Thanks.

Joel Owens · Answer

The answer is to stop working with non-ideal clients.Are there alternative ways to do or try something? SUREThe odds of it happening are one in many thousands or more especially in sellers commercial markets. I stopped many years ago working with Unicorn type buyers that want the world and have 10 cents with a dream. I have potential buyers fill out my form and review financials. We hop on a call and then I have them sign an exclusive agreement. If at anytime in the process they give resistance I let them know we are not a fit on move on to the next inquiry and I get LOTS of inquiries on a weekly basis. Happy to take on new clients but ONLY if they fit my criteria and follow the process I outline. I have been doing this going on 18 years so I know my process is good and it works because I have done it over, and over, over again.

Matt Devincenzo · Answer

Here's a question, what is 'a slightly lower rate'? Are these buyers at say 25% down and just can't quite get to 30%? Or are they at 10% and can't get to 25%?The reason for the higher down in commercial is it takes more and generally longer to fill a space. Meaning risk is often higher, and therefor the bank needs to mitigate that risk to ensure you won't default. Two thoughts come to mind 1) it's more common for a commercial seller to hold a 2nd position for part of the sale price 2) get two of you buyers together to partner on a purchase. If each has 15% down then together on the same property you'd have 30%.

Charles Kao · Answer

@Devante ScholfieldAs a private lender, past commercial lender, realtor and CRE investor I have seen it from all sides. Would you lend to your own clients on these deals they are looking at for less? Because I have actually done it and can tell you that its easy to say what others should do woth their money. Buying an amazing deal and having the ability to reposition it are both important so my recommendation is you tell those clients that need low money down loans to get a partner that does not need low money down loans. Better to get half of a deal than none of one at all. I can only imagine how this market could inflate if people could get 10% down deals with little experience.

Wes Johnson · Answer

@Devante Scholfield1) Then you need to become a people broker. start introducing your clients to each other so they can jv partner together2). Is the commercial property is somewhat distressed possibly the seller will carry back a portion of the sale (seller finance) which should reduce the down payment needed3) encourage your clients to research syndication and capital raising techniques. this is the most difficult as it requires following SEC rules and starting a thought leadership platform but is a great way to take down properties without your own money

Michael Ablan · Answer

@Devante Scholfield - Ask the owner if they will carry any of the down payment

Bill Horton · Answer

@Joel Owens that is a fantastic process you have, and exceptional advice. There are a ton of people out there who don't necessarily intend to waste your time, but they are not quite ready to do what they are trying to do. It is best to give them advice on how to build up their financials and experience, then to string them along and "try" to find something for them.

Joseph Hammel · Answer

Hey I'm in your area. I'm only paying 20% down on my deals.

Ash Patel · Answer

I have never put more than 20% down on any commercial deal including vacant buildings. 4.25% interest 25 yr amt. Recently put 15% down on a smaller strip. Most of these have some value add upside to them.I have a 15 year track record with the same local lender. I think having a lender as a business partner is the most valuable asset in CRE.