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Updated over 10 years ago on . Most recent reply

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Bill Pederson
  • Sioux Falls, SD
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Need help financing addition to our self storage facility

Bill Pederson
  • Sioux Falls, SD
Posted

Greetings,

1.5 years ago I was able to purchase 2.5 acres of land free and clear by taking a mortgage out on my home. I built a 254 unit state of art self storage facility which we are at 90% full. My average expenses now that we are stabilized are $72,000 per year and my gross rents are $270,000 which give me a NOI of $198,000. Using a cap rate of 8% I would get a value of $2,475,000 which I owe $1,747,000. Using these numbers I should have $728,000 in total equity to use for the expansion across the street from our first phase. On our non climate controlled units we are full and have been full for 6 months. I have a small window of time to acquire land across the street for a good price to add an additional 24,000 sq. ft. of storage. I did talk with my bank and because I took an SBA loan out on our first project I can't refinance my current loan in order to use the equity to start phase 2. My dilemma is that I have sunk every cent that I have into the first phase and do not have cash to buy the land across the street to start building and the seller is not going to wait very much longer before he sells to someone else. I really don't want to bring on a partner being that it would be in competition with our current facility.

My question is does anyone have advice on how I could get financing to set up phase 2. I was thinking of a hard money lender but not sure who to contact. I live in Sioux Falls South Dakota and I am not sure we have hard money lenders in our state.

thanks so much for your time,

Bill Pederson

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Michael Wagner
  • Specialist
  • Victor, NY
844
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823
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Michael Wagner
  • Specialist
  • Victor, NY
Replied

@Bill Pederson ,

My first question for you is why can't you refinance your SBA loan? Is it an SBA 7A? IF your bank tells you you have a pre-payment penalty of 3% because you are in year two and that number is prohibitive for you, then that's one thing but if they are saying refinancing an SBA7A with another SBA 7A is "not allowed", well that is baloney. Its a common misconception out there though. I know because I was in your EXACT position last October and had 13 banks say no before number 14 said yes! We also scheduled it so the closing was 2 years and 1 day after my initial purchase thereby bringing the pre-payment penalty down to 1% instead of 3%. If your bank is "unwilling" to refi a SBA loan with another SBA loan, then simply apply for it with them and request a denial in writing. Then put the denial in your back pocket and shop your deal to other banks. Once you find a taker, they will need that denial letter on file to allow them to proceed. It can be done though. I realize that none of this addresses the fact that your current LTV might not provide enough room to pull capital but SBA can by regulation go 90% or beyond (though rare). HOpe some of this helps....Keep us posted!

  • Michael Wagner
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