Ok, so how much of down payment for commercial loans? really...

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Ok, so how much of down payment for commercial loans? really...

Minsu Goo
Des moines, IA · Member since 2012 · 10 posts · 0 votes

I've been looking at investment properties, either retail or multifamily 5+.
Banks I've talked to saying 20-35% down payment in general for multi unit.
Someone told me 50% for retail commercial properties.
I said he's crazy. I recently sold my business+real estate meaning I do not have additional income coming in. I didn't make much either for last 2 years.
Realistically, with excellent credit, not much of income last 2-3 yrs, can I get the loan approved? If I had $250k, how much can I buy with that money?

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Mario Brown
Investor · Greenville, SC · Member since 2016 · 163 posts · 108 votes
8y

I feel like this is pretty counter to what the plurality suggest but i use a local credit union to do acquisitions with in-house commercial loans. Though i do have W2 income, i have been told the focus of the loans are NOT the individual but it is the DEAL that carries the true weight. 

80% LTC, 5 Year Loans, Amortized over 20 Years. (Rates typically 4.5) Interest only for 6-12 months depending on scope of project. 

Actually closed a 36-Unit Purchase w/ less than 9%

Puchase Price + Rehab Cost 1,100,000 

-----  1sT Mortgage $880,000 (held by bank) 

----- 2nd Mortgage  $100,00  (held by seller, interest only for 3 years, amortized over 20 years) 

------ Pro- Rated Rents $14,000 ( Closed on the 2nd of the month)  (Also got a repair credit & credit for deposits but not counting those. 

=

$106,000 Down Payment 

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    13y

    Lack of income is a killer. You're going to have a hard time getting any loan. If you do find a bank that will make the loan, they going to want to have plenty of room on the loan and they're going to want to be convinced the property itself can cover the loan. They know that you have no means of dealing with a hiccup with the property. That's where that 50% number is coming from. Further, if you have no income, the bank is going to know that you are going to be pulling cash out of the property to use for living expenses.

    I fully believe 50% on a retail property. I've seen newly constructed retail space around here sit empty for YEARS. Now, it does appear to be picking back up.

    The terms on these loans varies a lot. If local bankers are giving you terms, believe them.

    I'm certain you can buy a $200K property with your $250K in cash. If you find a solid property with a long (five years), documented history, I suspect you can get a loan, at a pretty low LTV.

    Getting a 10% cash on cash return from rentals is doing pretty well. That means you're going to make $25K a year from this money. Now, perhaps you can do better and make 20%. That gives you $50K. Is that enough to live on?

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  • Minsu Goo
    OP
    Des moines, IA · Member since 2012 · 10 posts · 0 votes
    13y

    Thanks Jon. So should I conclude that commercial loan is no go and try to find something I can buy cash out-right?

    0Reply
  • George Paiva
    Investor · Milford, CT · Member since 2012 · 592 posts · 285 votes
    13y

    Lowest I saw when I was getting my commercial loan last year was 20% down but be ready to pay either a slightly higher interest or points. My choices at the time was 20%,25%,30% down-payment & 10yr, 15yr at most otherwise it was a 5 or 7yr arm with balloon payment at end & rates started 2 to 3% on top of PRIME rate plus points for the lower rates.

    0Reply
  • Zac P.
    Rental Property Investor · Lexington, KY · Member since 2012 · 115 posts · 64 votes
    13y

    I have used commercial loans before and I had to put 25% down. I am not involved in retail commercial properties, but I have heard that 50% down is not uncommon. I guess that is why they call it a "Rich Man's game".

    0Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    13y

    Hi Minsu,

    You can partner with another investor who has other sources of income to buy a multifamily or retail property and pool your cash. This will make the bank go a higher LTV than 50% with a partner who has reserves and more funds coming in.

    Banks also allow this for investors who are out of the country. They will look at a sponsor for the foreign national as a partnership. I have found some banks have foreign national programs but want 50% down which kills the investors cash on cash. The local sponsor helps with a 75% ltv.

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    2Reply
  • Jeff Greenberg
    Real Estate Consultant · Camarillo, CA · Member since 2010 · 2k+ posts · 1k+ votes
    13y

    Bring in a partner with a net worth equal or higher than the loan and liquity around 10% of the loan. That should help you get a better LTV 70-80%. They will need to sign on the loan and it will be a recourse loan. These requirements vary with lenders.

    0Reply
  • Minsu Goo
    OP
    Des moines, IA · Member since 2012 · 10 posts · 0 votes
    13y

    Thanks for the replies guys! I'm not out of country investor by the way.
    Partnership is not an option for now, maybe for later if I can't really get a loan. I thought I had a good idea what the bank is requiring like 30% down, dscr of 1.20 or higher, good credit score etc.
    I mean with 250k, that only allows me to buy 500k property vs. 830k if 30% down.
    I like to find a local bank that will require only 30%, I'll be ok with 35% too. I'll keep trying.

    0Reply
  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    13y

    I have had to owner finance the commercial properties I have sold in this market. I get 20 - 35% down, I then will finance the balance for 5 years at 8 %, 10 years and 12%, or 15 years at 14%. This allows me to sell these notes in the secondary market after 12 months of seasoning without having to take a large hit.

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    0Reply
  • Derek Carroll
    Syndicator and Fund Manager · Victor, NY · Member since 2012 · 760 posts · 345 votes
    13y

    im a commercial mortgage banker, here's what im seeing:

    when looking at commericial loans banks are increasingly looking at the creditability of the borrower when making loans instead of the value created by the real estate. I've even seen some require a net worth double the amount of the loan. without any income or a track record of investing in similar properties I'd say you'll have a very difficult time getting 75% LTV from a bank.

    Life insurance and cmbs deals will go to 75% LTV and without recourse. some of them will loan on properties as small as $500,000 but most are looking in the $2-3MM range as minimums.

    It really depends on the level you want to play at. if you can convince some partners to go in with you on a $2-4MM deal you'll get away with 25-30% down all day for all property types.

    1Reply
  • Derrick Moore
    Lender · New York City, NY · Member since 2013 · 67 posts · 7 votes
    13y

    Normally for retail would be 25%. And for multifamily (5 units and up)its at 20% and we don't underwrite based on tax returns. And sometimes we can be a little more aggressive and go 15% down but that includes acquisition and closing. But like Jeff G; said you have to show that 10% liquidity. We are generally more flexible than banks.

    0Reply
  • James W.
    Real Estate Investor · Member since 2008 · 56 posts · 0 votes
    13y

    on my most recent purchase of a commercial retail space last month, I had to put about 50% down. It is very different from residential.

    0Reply
  • Danny Young
    London, london · Member since 2014 · 1 post · 0 votes
    12y

    I heard the same thing. about 20% down for commercial loans. there are better options i think , but im not an expert

    0Reply
  • David Avetisyan
    Rental Property Investor · Glendale, CA · Member since 2013 · 685 posts · 334 votes
    11y

    I am going to revive this conversation as I have the following questions regarding a multi unit:

    - Will my personal income and W2 tax returns play any role?

    - Will I need to have a reserve on my current investment properties, like a conventional loan requires?

    - How should I be doing the math on every 100k of the purchase price? 

    I'm open to answering questions.

    Thanks in advance 

    0Reply
  • Al Wilson
    Investor · Daphne, AL · Member since 2014 · 1k+ posts · 242 votes
    11y
    25% is minimum down payment in our part of the world.
    0Reply
  • Mario Brown
    Investor · Greenville, SC · Member since 2016 · 163 posts · 108 votes
    8y

    I feel like this is pretty counter to what the plurality suggest but i use a local credit union to do acquisitions with in-house commercial loans. Though i do have W2 income, i have been told the focus of the loans are NOT the individual but it is the DEAL that carries the true weight. 

    80% LTC, 5 Year Loans, Amortized over 20 Years. (Rates typically 4.5) Interest only for 6-12 months depending on scope of project. 

    Actually closed a 36-Unit Purchase w/ less than 9%

    Puchase Price + Rehab Cost 1,100,000 

    -----  1sT Mortgage $880,000 (held by bank) 

    ----- 2nd Mortgage  $100,00  (held by seller, interest only for 3 years, amortized over 20 years) 

    ------ Pro- Rated Rents $14,000 ( Closed on the 2nd of the month)  (Also got a repair credit & credit for deposits but not counting those. 

    =

    $106,000 Down Payment 

    4Reply
  • Christopher B.
    Investor · Southeast, MI · Member since 2016 · 425 posts · 184 votes
    8y

    @Mario Brown, can you PM me, I'd like to understand your numbers on this deal.  I have a 4-unit, and looking at some larger buildings to acquire, but want to understand more about the commercial side a bit.  

    1Reply
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