Is it possible to get a 600k commercial loan at 23?

[Account Closed]

My husband and I are looking to buy an apartment complex in the next year. We are working on our investing education as well as our criteria. Ideally we would like at least 15 units. We have 550k in cash and would be willing to put 400k down on a property up to 1.3 million. We are worried that a few factors such as our young age (both 23 at the moment), our short credit history (only 2 credit cards and a truck), and our desire to buy out of state (we live in Los Angeles and neither of us want to stay here as it's too expensive) will work against us. Right now we are both working on master's degrees so we are staying in LA for at least 2 more years. What are your thoughts on this? Im new to this blog/these forums! My husband and I want to be able to set lofty goals and obtain them, but we also want to be realistic. Our main goal is cash flow as we are really just interested in passive income. We both plan on having W-2 jobs but hope to retire in our 30's and live off of our investment property. 

I guess my question turned into more of an intro. Has anyone had success with large loans at such a young age? Our only stable income is 35k/yr as my husband's fluctuates. We usually make around 50-60k a year but aren't able to save much due to the high cost of living here.

[Jonathan Twombly]

Congratulations on being so fiscally prudent that you have saved up that much money to work with.

The thing to keep in mind is that commercial loans work very differently that residential ones.  One key difference is that, to qualify for a loan, commercial lenders generally require the ownership group to have a net worth equal to or greater than the mortgage amount, with 10% in cash, excluding the money that you are putting into the deal as the downpayment.  Even if the loan is non-recourse, it will be subject to what are known as "bad boy" carve-outs, which turn the non-recourse loan into full recourse if you do any of a list of bad acts.  Because the lender wants to know that it can recover against you if you commit a bad act, it has the net worth requirements that I described earlier.  So, even though you have a large downpayment saved up, you won't be able to multiply it by 4 to figure out how much property you can buy.  (And you really should expect to put 30% into the deal, when all expenses are included.)

Instead of attempting to buy a single large property equal to 4x what you have available as downpayment, you should look into buying several smaller properties for the same value.  By doing that, you are able to count the equity you have in the other deals in your net worth as you apply for each loan.  And, of course, as your net worth grows, so will your ability to finance new deals.

Of course, all this depends on whether you can buy at the right price and the property is cash flowing well from the very beginning.  Never invest in property because you think it will appreciate, unless you are also getting enough cash flow from the property to cover all expenses, debt service, reserves, capital expenditures, and some profit for you.