Private money terms?

Question

Thoughts on $150000 loan @6-9% interest amortized for 15 years with ballon in 5 years for a down payment on a self storage complex? Or would you find pm to finance the entire purchase and refi after a year?

Andrew Postell · Answer

@Cody Burke so when I hear of "Private Money" I think of money that comes from people that I know.  Now, some people might say "I'm a private lender"....but those types of lenders usually need appraisals, underwriting, etc.  So while the phrase might be used in an interchangeable way just know that some of us have private money sources that just give us money when we need it because we have an established relationship and we make them money.  No underwriting.  No appraisals.  Just relationship based.  So my own private lenders would be totally ok with a term like that...because they know me.  But any "institutional" lender is not really going to want to do a loan like that.  I hope this makes sense how I am describing it.

To scale larger with commercial properties is a little harder than scaling on residential properties because of the downpayment requirements and underwriting needed on commercial buildings.

Alex Breshears · Answer

Hi Cody! As a private lender myself, I will tell you that it will be hard to find a lender that will do this type of loan.  Think about it from the lender's perspective. They are supplying the capital that is most at risk of being lost. If the market softens, your business plan doesn't go as planned, you don't have adequate insurance if something happens to the property, and the list goes on and on, the capital is at stake.  Also, with rising interest rates, few people are going to want debt tied up in a deal for 5 years, especially at those rates.  You may have more luck trying to find a capital partner, so they are on title of the property and could participate in how it is run and also participate in the upside.

Andrew Postell · Answer

@Cody Burke hmmm, if you need the downpayment money, then I would absolutely check with your bank/lender to see if they would even allow you to get a loan for it.  Many do not.  If you do know of some private lenders that can lend $1.5million....well, that's pretty nice company you have...but I would try to get at least a 20 year amortization if you can.  That would allow for more cash flow on the property.  Hope all of that makes sense.

Cody Burke · Answer

@Andrew Postell thanks andrew. On your relationship with your lenders. Would they structure a pm loan like this as a down payment for a commercial loan through a bank and pay the loan at balloon term?

Cody Burke · Answer

@Chris Seveney thanks for your response. I’ve flipped a couple houses and now getting into self storage. Also wanting to learn more on the funding with private money side.

Chris Seveney · Answer

If you have those terms offered to you i would grab them ASAP. Without knowing the down payment, property value, property financials it will be difficult for a lender to determine if they would do that loan.

Cody Burke · Answer

@Alex Breshears thank you for your response. We have a property under contract and are wanting to scale faster by closing on other deals.

Private money terms?

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