Having a hard time lining up a loan for a commercial property

Multi-Family and Apartment Investing
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Having a hard time lining up a loan for a commercial property

John Gerwatosky
Member since 2018 · 16 posts · 6 votes

Hi,

I have an off market property in Toledo, OH that I have been trying to acquire financing for. It is a 6 unit property for under $100k. It is a great deal and the owner is willing to wait for me till I line up financing. However I have been running into the same two issues, which are:

1. The property value is under $100k (Or it is under $30k a unit)

2. I do not live in Ohio (I live in Southern California) 

Have you experienced these issues as well? My credit score and income are more than adequate to be approved for the loan (I can put 25% down). I am at the point where I have thought of different options to secure this unit, which includes purchasing and getting loans 4 other SFR or Duplexes from the same owner and inflating the price by about $20k a unit (4 units would be $80k) and then he can deed the 6 unit into my name while I finance the other 4 properties. Has anyone had experience doing this? If so, how did it go? Did it work?

Please advise if anyone has a different idea to help secure the 6 unit.

Thank you,

John

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Account Closed
Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes
7y
Originally posted by @John Gerwatosky:

@Account Closed This is a C class area and I received a good deal on it. If you have invested in Ohio then you would know that the prices are very cheap. 

 Yes just signed contract today for toledo duplex for 67k.  Six plex for under 100k sounds to scary for me but best of luck with it.

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  • Jaysen Medhurst
    Rental Property Investor · Greenwich, CT · Member since 2015 · 4k+ posts · 2k+ votes
    7y

    @John Gerwatosky, the price is an issue. Especially, since it's a commercial loan. That's a really low amount.

    I'm surprised that being out of state is an issue. I was pursuing an out-of-state 8-unit a while ago and commercial lenders were more than happy to do business with me.

    Two options I can think of:

    1. Owner financing
    2. A non-bank lender. There are a bunch on BP. CoreVest, Visio, and bunch more.
    2Reply
  • Stone Jin
    Rental Property Investor · Chandler AZ and Sylvania, OH · Member since 2009 · 708 posts · 561 votes
    7y

    I would agree that likely they don't want to waste their time with the loan due to the low price.  They have to do the same amount of work for an 80K loan as they would for an 800K loan.  

    The out of state thing is an issue with some lenders in Toledo, about 1/2 the banks I've talked to do not want to lend to out of state investors.  There are a couple that are willing to have a conversation.  

    Sounds like you want to buy the whole portfolio, why not just do that then.  They are more likely to talk to you if the whole portfolio is 200K +.  If downpayment is the issue have the owner finance a part of it.  

    Is this your first purchase as a real estate investor?  Else you can get a line of credit off another property you own and use that to purchase.   However just be wary of units under 20K a door in Toledo, paper returns are always better than real returns.

    1Reply
  • Edward Liu
    Palo Alto, CA · Member since 2017 · 230 posts · 200 votes
    7y

    For Ohio, you can try US Bank or Wells Fargo, not sure if they do loans this small for remote investors.  They have done larger deals for me (out of state) in Ohio.

    It might be easier to refinance for less than $100k deals (purchase in cash and then refinance once you have all units rehabbed and rented).  You have to check with bank first before taking this route.  

    Many local banks won't lend to investors out of state.

    0Reply
  • Account Closed
    Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes
    7y
    Originally posted by @John Gerwatosky:

    Hi,

    I have an off market property in Toledo, OH that I have been trying to acquire financing for. It is a 6 unit property for under $100k. It is a great deal and the owner is willing to wait for me till I line up financing. However I have been running into the same two issues, which are:

    1. The property value is under $100k (Or it is under $30k a unit)

    2. I do not live in Ohio (I live in Southern California) 

    Have you experienced these issues as well? My credit score and income are more than adequate to be approved for the loan (I can put 25% down). I am at the point where I have thought of different options to secure this unit, which includes purchasing and getting loans 4 other SFR or Duplexes from the same owner and inflating the price by about $20k a unit (4 units would be $80k) and then he can deed the 6 unit into my name while I finance the other 4 properties. Has anyone had experience doing this? If so, how did it go? Did it work?

    Please advise if anyone has a different idea to help secure the 6 unit.

    Thank you

    Is this in an F class area? The seller will patiently wait for you to get financing because nobody else will touch it with a 10 foot pole.

    1Reply
  • John Gerwatosky
    OP
    Member since 2018 · 16 posts · 6 votes
    7y

    @Edward Liu I will get in contact with those banks. Thank you for the input! How large of properties are you securing with those banks? 

    1Reply
  • John Gerwatosky
    OP
    Member since 2018 · 16 posts · 6 votes
    7y

    @Account Closed This is a C class area and I received a good deal on it. If you have invested in Ohio then you would know that the prices are very cheap. 

    0Reply
  • John Gerwatosky
    OP
    Member since 2018 · 16 posts · 6 votes
    7y

    @Jaysen Medhurst Yeah I am a bit surprised about being told they will not work with out of state investors as well. I firmly believe that it is because the loan amount is low. I will check out those other lenders. Thank you!

    0Reply
  • John Gerwatosky
    OP
    Member since 2018 · 16 posts · 6 votes
    7y

    @Stone Jin Yes I do own 4 properties in Ohio at the moment. I was considering grouping them as a portfolio but was told those loans are even more tough to come by. 

    The down payment is not an issue. I have been paying cash for my previous properties but want to increase my total unit number quicker by taking out loans. 

    0Reply
  • Stone Jin
    Rental Property Investor · Chandler AZ and Sylvania, OH · Member since 2009 · 708 posts · 561 votes
    7y

    @John Gerwatosky You can try getting a commercial loan across the 4 properties.  I wouldn't say they are tougher to get but you probably don't want to go the conventional route.  If those 4 are in NWO, then PM me and I'll send you a couple of contacts that may be able to help.

    0Reply
  • Vinod Patel
    Member since 2019 · 1 post · 0 votes
    7y

    @John Gerwatosky

    I also live in Southern California and looking to buy realestate out of State.

    I would be interested if you want to acquire this property all cash rather than deal with lenders.

    0Reply
  • Account Closed
    Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes
    7y
    Originally posted by @John Gerwatosky:

    @Account Closed This is a C class area and I received a good deal on it. If you have invested in Ohio then you would know that the prices are very cheap. 

     Yes just signed contract today for toledo duplex for 67k.  Six plex for under 100k sounds to scary for me but best of luck with it.

    3Reply
  • Clarence Watkins
    Rental Property Investor · Chicago, IL · Member since 2018 · 34 posts · 5 votes
    7y

    @John Gerwatosky What determines the class of neighborhoods? I’ve seen this a lot. F-class versus C-class. Is this just a guess or is there an authority on this?

    0Reply
  • John Gerwatosky
    OP
    Member since 2018 · 16 posts · 6 votes
    7y

    @Clarence Watkins This is what I use to classify the neighborhoods, which I found of BP Forums (As well as qualified property managers to let me know). 

    A - this is where you and I want to live (lowest crime, best schools); appreciation is very good (generally highest) and cashflow is either negative or very little; ideal for fix n flips if you find that "sore thumb"; best for new builds

    B - low crime, good schools; with some appreciation and positive cashflow; lots of homes are owned by first time home buyers in addition to renters with stable jobs/ good incomes; good for fix n flips as well

    C - some crime, OK schools; little appreciation and very good cashflow; renters with OK incomes; ideal for buy-and-hold specially if area is changing or becoming a B area; you can get very good ROI even for turnkey properties if you're in this area

    D - high crime, bad schools; no appreciation and very high cashflow; mostly subsidized housing; to succeed with this, you got to be a "hands on" landlord and literally live close by; lots of boarded up houses (one boarded up per block)

    F - this is where the most violent crimes are committed; negative appreciation and the highest cashflow; every other house is boarded up; you either get shot or get stabbed so be careful so wear a bullet proof vest:) PMs don't even want to be in these areas

    2Reply
  • Clarence Watkins
    Rental Property Investor · Chicago, IL · Member since 2018 · 34 posts · 5 votes
    7y

    Thanks John. I appreciate your generous answer. Now, I too can communicate with this knowledge and understanding. 

    1Reply
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