100% Financed Interest Only Loan

[Louis Cavallaro]

Hoping someone can help me shed some light on this. It may be something interesting or it may be something I don't want to touch with a 40 foot pole...

I've been looking for commercial financing, came across a website (not sure if I'm allowed to post the site here or not) offering 100% financing (wasn't acutally looking for that much) but thought I'd call out of curiously. The phone reception wasn't great and the guy talked very fast as if I'd done this before but here's what I got out of it:

For $1MM Loan, they would offer a 5 year interest only loan at 3.1-3.1%

My partner and I would need a security deposit $150k + $20k (not sure about the 20k?)

They would issue a LOI within 24-48 hours (I believe this is after we bring them the property?)

After 5 years the loan is due or we refinance. No early payoff penalties.

It would look good if it works out like this: Say we find a 9 cap $1MM apartment. $90k - 32k interest = +$58k after debt service. After 5 years of making $58k we have just under $300k and have a proper down payment to refinance. (Or we sell the property and pocket the $300?)

We would need to go to California to meet the lenders in person the first time.

He said my partner and I didn't need experience as long as the apartment/property had a management team in place and we had a security deposit.

I am going to call back but wanted to see if I could get a few questions answered here first so I come across as knowing what I'm talking about:

1. Is anyone familiar with this type of program?

2. The $150k security deposit. He said we would get this back.... Does he mean after we either close the deal or the deal falls through during due diligence? Or are they holding it as collateral until the 5 years is up? (wouldn't really be 100% financing then...)?

3. The $20k? He kind of snuck that in their, so I'm taking it that's their cut for securing lender/financing?

Is there a term for this type of deal so I can look it up and gather more info? It seems too good to be true if it works like I calculated above but still peaked my curiosity...

I didn't get the greatest vibe from this guy as it seemed he was being kind of short with me. I asked him if he could email me the program info to show my partner and he said the company doesn't send out info until it is time for us to see the contract, but that I could call back with my partner on the phone... 

Thanks in advance

[Mitch Coluzzi]

Sidenote to Readers: In banking terms MM means millions and M means thousands; can get confusing when you ask for a $150k line of credit and the banker sends you a commitment letter stating $150M.  

The age old cliche of "If it sounds too good to be true, it is." 

Be very skeptical... very few people with $1MM are going to lend it willy-nilly; the ones claiming to be are probably up to something unscrupulous.... Think: Prince of Africa, need $1000 to get home but I will repay you 10x when I do!