Purchasing first commercial properties. Guidance on financing?

Question

Greetings new friends. I have been wholesaling residential real estate for 6 years I'm now ready to jump into commercial. I came across a 90 unit appartment complex for just under a million. It's a distressed seller situation, seller started renovating and had to leave country due to sick family member and abandoned theproject. I would like to find the best route to go after funding for this. It will take me $600k to finish renovations intop of the 1 million purchase price (market value is $3million as is) arv is 4.2million. I found a second 42 unit complex similar distressed seller. It's going to take $900k to purchase and $300k in improvements. Can I get a loan for both of these properties or should they be financed separately? Should I walk into my local bank and ask for a loan?

Blake Crawford · Answer

@Dan Handford thank you for your input Dan. Just to update everyone I spent 2 weeks networking like crazy to make this come together. I ended up with a hard money lender that gave me a zero down loan with enough extra to operate the place due to the great value on the property. I will be the first to admit I'm not qualified to run the place. I subcontracted out management to a very credible team.

Blake Crawford · Answer

@Theo Hicks Will do. I got a message, my investor for my earnest money deposit passed away due to cancer yesterday. On the hunt for 2.5million in 48 hours. Wish me luck!

Dan Handford · Answer

@John L. I agree that this project will need unconventional financing and putting the loans together would be a bad idea.@Tyler Kastelberg Local bank financing might be the best with this type of project since they will be more comfortable lending on a local asset where they know the market. Definitely going to get the best rate here too.@Theo Hicks You're right...he will definitely need an experienced partner in order to qualify for the financing if going the bridge route...or at least have some form of construction background.@Ellis Hammond Most KP/Loan guarantors will only sign on non-recourse debt although this may be available depending on the bridge lender.@Todd Dexheimer My thoughts exactly! Try getting some seller financing to get the deal done...especially because it is distressed. Then seeking out local bank financing...it will be recourse but at least you could get the deal done...better be confident you can renovate, stabilize, and refi. @Blake Crawford I see you just posted while I was writing this...thought I'd post it anyway. Sounds like you made the right decision on these...more will come your way.

Blake Crawford · Answer

@Todd Dexheimer thank you, I passed on this deal was it needed more work than I was willing to provide but the advice found in the links and this post has aloud me to secure hard money lender for other large commercial projects. I cant say thank you enough for your input.

Theo Hicks · Answer

@Blake Crawford Congrats and great to hear. Keep us updated on your progress!

Todd Dexheimer · Answer

Your best options will be seller financing or a local bank loan. A bridge loan is an option, but will be the most expensive option. For the local bank, call a dozen or so local banks and tell them you're looking for a construction loan on the purchase plus renovation. You should be able to find a bank do do 75-80% Loan to cost. For seller financed deal check out this article that I wrote: https://www.biggerpockets.com/blogs/10145/76815-se...Also, if this is your first apartment, I would suggest buying just one of these and wholesaling the rest or finding partners.

Ellis Hammond · Answer

@Blake Crawford this may sound too simple but have you asked the seller how he/she was financing the rehab? Something to assume or work with? Be curious to know. There are lots of bridge loan lenders that may help you with the rehab costs. They contact me everyday on linked in. They will want to see experience though. If the deal is as good as you say it is then ask around your network for a partner who has the experience and willing to sign on the loan with you and share % of equity. Best of luck to you!

Theo Hicks · Answer

Hi Blake,Since the properties aren't stabilized, they will not qualify for traditional agency financing. But, that doesn't mean you need to pay for the purchase price and renovations 100% out-of-pocket. Your best option is to secure a short-term bridge loan that will cover the renovation costs. Once the property is stabilized, you can refinancing into a traditional agency loan.In order to fund the down payment for the loan, you can either pay for it yourself or raise money. However, since you don't have any experience repositioning an apartment, you will have trouble attracting private capital and qualifying for the loan yourself. So, you will need to find an experienced partner.

Tyler Kastelberg · Answer

@Blake CrawfordBlake: It sounds like you found an interesting deal! You'll most likely need development financing to renovate and stabilize the building. Local banks are your best and cheapest bet, followed by private (hard) money.Once stabilized, you can refinance the construction debt into long-term, fannie mae or freddie mac "small balance" permanent debt. There are a number of mortgage brokers who can help underwrite this type of debt, and experienced folks can facilitate introductions for you. As @John L. said, rolling your deals into a portfolio loan will over-complicate the process today.Best of luck!

John L. · Answer

It sounds like both need to be stabilized so they will need unconventional financing.Putting the loans together would probably complicate the deals rather than help.What's the vacancy and NOI of both properties?