Loan product for self storage and metal building with NO INCOME?

[Mike H.]

I have an opportunity to buy a property in tennessee that has 25 self storage units AND allows for 25 more to be built. It also has a 6,000 sq ft metal building on it as well. 

But here's the catch.  There is zero income on the property right now because the current owners were using it for personal use and/or letting friends and relatives use the storage units and the metal building (for an auto dealership).  

Now because of this, nobody else has been able to get this property because they can't get a loan for it either.  I tried but the lack of income on the property is a no go. 

I actually have two options for this property: 1) Rent out the existing 25 storage units AND rent out the building plus add the 25 additional units out of pocket.
OR 2) Rent out the existing 25 storage units and added the 25 additional units out of pocket to rent them out BUT keep the metal building for my GC business to where we have offices and storage for building materials. We also have our main subcontractor and our driveway guy that would like to rent some space for their vehicles and materials as well. 

So we could do this loan strictly as a value add play on the self storage units and renting out the metal building. OR we could do it as an owner occupant for the GC business to where the self storage units would pay for our mortgage. 

Just a matter of whether we can find anybody that will do this loan.  I've tried some local lenders but they wanted to see income from the self storage units.  And they wouldn't do it for us as owner occupants because our revenue comes from selling houses (hell - we're a general contractor - thats how we make our money) which was strange but its their rules.  I've tried some hard money lenders too but they don't seem to have a product for self storage where there is no current income coming in.

The kicker is we've been able to negotiate the price down from 400k to 300k because we know they're trying to get their cash out and they told us they couldn't get a loan either.  And no other buyers can get a loan on this thing either because there's no income to show.

Anybody have any lending sources that might do this as a value add project?   The land (3 acres) and the metal building alone are worth well over 300k in this area.  I know because we have a 5 acre piece that is worth 200k and if we added a 6k square foot metal building, we could sell it for 450k all day long. 

[Jonathan Bock]

@Mike H.

The bank will say no now and then give you a 600k loan after you stabilize.  

[Henry Clark]

OP your situation isn’t adding up.  With our three banks I could call them today, tell them the situation you stated,  send them the projected financials.  They would say come in and sign the loan papers on Monday.  Today being Friday.  

That means a couple things.

1.  You have bad credit or have not built a banking relationship.

2.  You have not pulled together a financial plan.

3.  The market you are in, is a C market and can’t support that business model.

With the above said here are the options I would seek out

A.  Seller financing for one year.  Get your rentals going.  Then convert to term loan.

B.  Sounds like you have cash.  Pick a lender.  Deposit that money into a cd or mm with them.   Tell them they can use that as collateral.  Buys credibility for the loan. Do a working line or construction interest only loan for 18 months.  Get occupancy up then convert to a term loan.

C.  As a GC do you already rent or own a building?  That should be leverage for the banker.  Depending on your market the existing building you should get $1 per month per sq ft.  That is better than storage.  See if you can get a subject to lease agreement from one of your friends or associates.   Use that as collateral with the lenders.  

D.  Don’t fund the additional 25 unit add in with your money.  Use OPM.  

I’m expecting inflation to come storming back end of next year.  We plan to lock down any projects for us in the next 6 months or we will get priced out for many years to come.  Good luck in your deal.  

[Jared Rine]

@Mike H. Listen to @Henry Clark  If I were doing anything self-storage, he'd be my first call. 

[Mike H.]

Quote from @Henry Clark:

OP your situation isn’t adding up.  With our three banks I could call them today, tell them the situation you stated,  send them the projected financials.  They would say come in and sign the loan papers on Monday.  Today being Friday.  

That means a couple things.

1.  You have bad credit or have not built a banking relationship.

2.  You have not pulled together a financial plan.

3.  The market you are in, is a C market and can’t support that business model.

With the above said here are the options I would seek out

A.  Seller financing for one year.  Get your rentals going.  Then convert to term loan.

B.  Sounds like you have cash.  Pick a lender.  Deposit that money into a cd or mm with them.   Tell them they can use that as collateral.  Buys credibility for the loan. Do a working line or construction interest only loan for 18 months.  Get occupancy up then convert to a term loan.

C.  As a GC do you already rent or own a building?  That should be leverage for the banker.  Depending on your market the existing building you should get $1 per month per sq ft.  That is better than storage.  See if you can get a subject to lease agreement from one of your friends or associates.   Use that as collateral with the lenders.  

D.  Don’t fund the additional 25 unit add in with your money.  Use OPM.  

I’m expecting inflation to come storming back end of next year.  We plan to lock down any projects for us in the next 6 months or we will get priced out for many years to come.  Good luck in your deal.  

 No we both have excellent credit (760+).  I have over 7 million in net worth with my real estate holdings. And quite a bit of cash.   We just keep running into road blocks on this deal with lenders.  the biggest one is no income from it.  But the other issues we've run into from lenders is 1) We're a Gc to where the company's income comes from selling our new construction builds - the bank *US BANK actually told us they couldn't count that income at all because they view the sale of homes as "inconsistent".  Never heard of that but ultimately its their money and their rules so how do you argue.

I did try pushing them to seller finance but they wanted 100k down and I just don't want the property that bad to where I have to tie up my cash for the down payment plus the rehab to add the additional units and fix the place up.  I countered with 35k down but they wouldn't do it.

And believe me I don't really want to fund the additional units with my money.  But I was trying to show the lenders we would fund it.  

These people did lower their price recently and actually called us again.  But I'm still at my 35k down for seller financing.  I told them we just needed the seller financing for two years.  No go. 

[Henry Clark]

Reach out to your local bank or Live Oak bank.  Tell them you want to do a construction loan interest only.  To be converted to an SBA loan.  I always prefer to work with my bank who is in the local market.

Talk with the banks about depositing funds at their bank and using for loan leverage.  They will pay you income in the deposit plus they should knock off about 1% point in their loan to you since this is a hard asset as collateral. 

SBA requires a minimum of 51% owner occupied.   For self storage they consider that 100% owner occupied.  So that will get you past the owner occupied issue.  

Downside with an SBA loan is that there are penalties for early pay.  Also you can’t use any equity in that deal to finance another deal unless it is also with the same participating bank and SBA.  

[Jay Hinrichs]

Quote from @Henry Clark:

Reach out to your local bank or Live Oak bank.  Tell them you want to do a construction loan interest only.  To be converted to an SBA loan.  I always prefer to work with my bank who is in the local market.

Talk with the banks about depositing funds at their bank and using for loan leverage.  They will pay you income in the deposit plus they should knock off about 1% point in their loan to you since this is a hard asset as collateral. 

SBA requires a minimum of 51% owner occupied.   For self storage they consider that 100% owner occupied.  So that will get you past the owner occupied issue.  

Downside with an SBA loan is that there are penalties for early pay.  Also you can’t use any equity in that deal to finance another deal unless it is also with the same participating bank and SBA.  

I like the local community bank as a rehab loan.. I personally dont care for SBA loans as the terms and  such are something i would not sign up for myself.

Just stroke a check and then figure out it dont lose it because you cant get financing day one. ??? thats my  though  as this sounds like a great deal in more ways than just storage facility income vis a vi using the other building to anchor your new build bizz

[Trevor Finn]

Securing financing for a property without current income can be challenging, but there are specialized lenders who focus on the asset's potential rather than its existing cash flow. 

Some DSCR (Debt Service Coverage Ratio) loans don't require current income, focusing instead on the projected cash flow once you rent the units and building. Another option could be a private lender or a bridge loan, which might offer the flexibility you need to get started.

Hope that helps! Let me know if you need assistance to locate a lender!

[Gino Barbaro]

@Mike H.

I would find private money to buy this, or as the seller to hold a note, with no payments for 3-6 months, for you to lease it up. And then go to a bank and refi it to pay them back

Find someone with self directed IRA money, and borrow the money from them

Gino

[Sonny Dhillon]

Quote from @Mike H.:

I have an opportunity to buy a property in tennessee that has 25 self storage units AND allows for 25 more to be built. It also has a 6,000 sq ft metal building on it as well. 

But here's the catch.  There is zero income on the property right now because the current owners were using it for personal use and/or letting friends and relatives use the storage units and the metal building (for an auto dealership).  

Now because of this, nobody else has been able to get this property because they can't get a loan for it either.  I tried but the lack of income on the property is a no go. 

I actually have two options for this property: 1) Rent out the existing 25 storage units AND rent out the building plus add the 25 additional units out of pocket.
OR 2) Rent out the existing 25 storage units and added the 25 additional units out of pocket to rent them out BUT keep the metal building for my GC business to where we have offices and storage for building materials. We also have our main subcontractor and our driveway guy that would like to rent some space for their vehicles and materials as well. 

So we could do this loan strictly as a value add play on the self storage units and renting out the metal building. OR we could do it as an owner occupant for the GC business to where the self storage units would pay for our mortgage. 

Just a matter of whether we can find anybody that will do this loan.  I've tried some local lenders but they wanted to see income from the self storage units.  And they wouldn't do it for us as owner occupants because our revenue comes from selling houses (hell - we're a general contractor - thats how we make our money) which was strange but its their rules.  I've tried some hard money lenders too but they don't seem to have a product for self storage where there is no current income coming in.

The kicker is we've been able to negotiate the price down from 400k to 300k because we know they're trying to get their cash out and they told us they couldn't get a loan either.  And no other buyers can get a loan on this thing either because there's no income to show.

Anybody have any lending sources that might do this as a value add project?   The land (3 acres) and the metal building alone are worth well over 300k in this area.  I know because we have a 5 acre piece that is worth 200k and if we added a 6k square foot metal building, we could sell it for 450k all day long. 

 What condition are those units in and the metal building ? Do they need work before rented out ? 

you'll be able to get hard money loan but they would probably want substantial down payment ? are  you open for 40-50% down or less ? Also do you have savings on the side to cover lender payment for atleast 6-12 months if you are unable to rent this thing . 

[Art Webb]

Mike,  I work with various private money lenders that might be able to help.  DM me.  Do you have a business plan of annual projected revenue and expenses before debt cost ?   Do you have a survey of number of competitors and pricing within 5 miles ?  Do you know average income of families within 5 miles of your storage location.