The 4th Rule of Thumb - Getting Started in Commercial Financing!

The Fourth Rule of Thumb deals with your financing. It doesn’t matter how great an opportunity you have found if you can’t find the funds to purchase the self-storage facility. Typically, if you have found a great property at the right price, you will be able to find the financing and the partners to back you up.

The first person that you want to look at when you are looking into your financing is your commercial lender. You need someone who knows the market. You want someone who knows what is happening in your market. For example, we found a property that we really liked. Everything looked good on paper. We took it to our lender, and he told us that this property had already been turned down by their bank because of the number of self-storage facilities already under construction in that location. You want a lender that has your best interests at heart.

Secondly, paying cash for a property is not always the best use of your funds. For example, if you invest $2M cash into one facility, then you have one facility that is cash flowing and appreciating. However, if you spread that cash out into down payments for 5 or 10 properties. Then you have that much more appreciation and cash flow.

When you approach your lender, you need to be prepared. You can never undo a first impression. You want to make sure that you are ready to answer the questions that they will have for you. They are going to evaluate 5 key areas when they are qualifying you for your financing.

They are going to look at your reputation and your Credit, your ability to repay the loan, how much you are planning on investing out of your own pocket, what you are planning on using as collateral and the current conditions in the industry. We are going to spend the next few blogs discussing these in more detail.

Start looking for a good lender. Ask for referrals from prominent people in the industry. Get references, make sure that they know what they are doing. Once you have established that they are a great self-storage commercial lender then it is time to prepare for the interview. As always, happy investing.