Determining the Down Payment for Your Self-Storage Property

Commercial loans come in every size, shape, and package that you can imagine. They are specifically tailored to your property. As a self-storage investor, you don’t need to know about every loan program that is out there; however, you do need to know some of the basics, and you need a really good commercial lender who does know all the programs so that you can always find the best fit for your self-storage project.

The first thing that is important to understand is that you don’t just go out and get pre-qualified for a commercial loan. Most of the loans are based on the collateral that you will be providing. Some of the loan will be guaranteed by you, so you and your credit will be taken into account, but the majority of the income will come from the property.

Before you begin looking for properties, you should sit down with your commercial lender and talk about the different loan programs that are available. You should find out what the requirements are for each of those loans. If you only have to put 10% down, that is a much bigger difference than if you have to put 45% down. That either means that you are going to have to use a larger chunk of your resources or that you are going to have to raise more money from your investors.

For example, an SBA loan only requires 10% down. In addition, this loan is set for 25 years and doesn’t have to be refinanced every 7 years like its commercial counterparts. This means that the rates that you lock in are guaranteed. However, there are restrictions on SBA loans. You need to make sure that you meet those restrictions. You can visit the SBA website, or you can review them with your lender.

If you can’t take advantage of an SBA loan, then you will probably have to go conventional. Conventional commercial lenders want to see 35% or more down. Now, this doesn’t mean that it has to be your money; it can be your partner’s money. However, if your credit is really bad or if the lender feels like they are taking a really big risk, then you might have to bring a lot more money to the table. This is one of the reasons that you want to start by talking to a lender.

You need to know how much money you are going to have to bring to the closing table. This allows you to get a better feel for how many investors you are going to need to get the project to closing. The only way to do that is to coordinate with your lenders. There are tips and tricks for how to work with lenders. Find an experienced mentor to help you. As always, happy investing.