The 4th rule of thumb and Conventional Financing in Self Storage

Once you know what your lender is going to ask of you, you need to be prepared to ask your lender what kind of options you have. There are several different types of loans available for conventional loans. They range from government supplemented SBA loans to traditional conventional loans to private financing. You need to find the loan that works best for each project. While some projects may be ideal candidates for SBA loans, others may not. You need to find a lender that is familiar with all of the different loan options so that they can help you determine which one is the best for your project.

SBA loans allow you to put less money down. They are amortized over a 30 year period of time and usually have a lower interest rate than conventional loans. On the other hand, you must own the property, there is a pre-payment penalty and you must meet the lender requirements.

A conventional loan is usually amortized over 30 years, but they have a balloon payment every few years, usually 7. The amortization and the length of the loan both affect the interest rate that you will receive on your loan. If you want a longer loan period, you will likely receive a higher interest rate.

Because of the need to constantly refinance your property, or be forced to pay in full by selling, you must keep the property operating at its prime. Not only do you need to show the lender that your property has appreciated so you have equity in it, you also need to be able to show your investors. You don’t want to have to keep putting money into the property because it hasn’t appreciated enough to warrant a new loan.

Lenders usually like a lower loan to value ratio. They will go as high as 80% under perfect circumstances, but usually, they are going to stay way below that. This means that you need to have that much equity each time that you have to refinance your property.

Be sure to ask your lender about your current options and how they will affect you in the future. You don’t want to get caught in a situation where you can buy the property today, but you will be forced to sell it in a few years. Ask your lender what they think a good price range is for you and what the best way is to get started. As always, happy investing.