The 4th Rule of Thumb & the 4th Key to Talking to Self-Storage Lenders

When a lender is considering lending on a property, they often look at the current market conditions. A commercial loan is unlike a residential loan. While it is amortized over 30 years, there is a balloon payment due every 5 to 7 years depending on the terms of your loan. If the market looks like it is going to be strong over the next decade, then they know that you will be able to refinance. They want to know that if they have to take back the property, they are going to have enough equity that they can get back the money that is owed to them.

If it looks like the self-storage industry market is going to tank, they may require more money down so that they are not stuck with a property that has negative equity should the buyer default.

One key study that is going to help you when talking to a lender is your feasibility study. This is a third party study that tells the lender the good and the bad about the property and the market conditions. The lender wants a third party opinion that supports that this is a good investment. The lender is going to believe the study over you no matter what you tell them.

Make sure that you know what the market is doing. If you know that the market is about to take a dip, take that into consideration when you are making your offer. You make your money when you make your offer. If you offer to much for a property, there is no room to build equity in it. If your exit strategy is to fix up the property, increase the performance and then sell for a profit, you need to know what the market is doing.

Make sure that you know the market before you meet with a lender. You want to sound well educated when you are trying to borrow several million dollars. They need to have the confidence that you can repay the loan. As always, happy investing.