20 Unit Deal - Commercial loan questions

[Mark Doty]

Hey BP Community,

I'm trying to figure out how much cash I'll need to raise in order to obtain a commercial loan and be able to close on a light value add property.  He is roughly what I've come up with but would like input from the community.

$1M Property (12-24 units) - will need to meet or partner with someone who meets Net Worth requirement

25% Down

15% Reserves - 6 months of debt service + light rehab

I'm targeting the raise at $400K.  Does that sound too much, too little or about right?

10% liquidity after close  $75K

How much to allocate for the following:

Closing Costs (2%?)

Due Diligence / Inspections

Legal - to create LLP and PPM

What else am I missing?

I can probably achieve or partner with someone who will help with the Net Worth, Credit Score, Cash Reserves and am planning to buy something that will have a Debt Service Coverage Ratio above 1.25%, but I've never bought a commercial property before.  If I meet the other financial requirements will lack of multifamily experience be a deal killer?  Or do I need to knock on the door of smaller local banks?

I'm probably missing a few obvious things so please let me know if this fosters additional questions or discussion.

[Herman Herrera]

@Mark Doty Hey Mark. Not sure if this applies to you in California but I can tell you what I went through here in NYC. I recently purchased a commercial property for $980k. I was able to owner occupy the space (I moved my office there) and get away with 25% down instead of 30%, which was the minimum requirement. I used Investor’s Bank and wound up with a 5.25% 7/12 rate (locked for 7yrs and callable in 12yrs). I own about $4m in additional real estate which did come into play during the application process. So total out of pocket for me was $277,000 as follows: $245,000 (25% down payment) $32,000 (closing costs...mainly mortgage tax and title) And my payment is $5,804 per month with taxes. I have 7 tenants in the building that help me cover that. The loan parameters for commercial properties are the same for multi unit properties here in NYC. Though assets and credit did come into play, your NOI needs to cover the mortgage with a certain vacancy rate. Lenders will vary. I suggest shopping around. I went to several banks and private lenders before choosing Investor’s Bank. Good luck.