Unlocking the Mysteries of Financing in Self-Storage Part 2!

There are several different types of loans available in the commercial industry. It is important for you to know that your lender knows which one will be the best for you and your self-storage project. You want to have an idea of what your down-payment, payments and terms are going to be so that you know if your property will cashflow or not. You also want to know what your exit strategy is going to be and if it will work with your loan.

Conventional loans are usually amortized over 30 years, but they have to be paid off or refinanced more often than that. Typically, every seven years. The amortization and the length of the loan both affect the interest rate of the loan. For example, if you want a longer loan period, then your rate is likely to be higher than if you are willing to take the shorter loan term.

Because of the need to refinance or sell the property so frequently, you need to make sure that you are doing everything you can to keep the self-storage facility operating at its prime. You need to be able to show the lender that the property has appreciated. You don’t want to have to come up with more money because your property has gone down in value when it is time to refinance to pay off your balloon payment.

Lenders usually like a lower loan to value on the property. They might go as high as 80% loan to value but more often they are going to stay lower than that. If you have a property that you borrowed a million dollars on and now you need to refinance that loan, then your property has to be worth more than that. You need to be worth at least $1,250,000 on the high end of the loan to value spectrum or $1,538,000 on the low end of the loan to value spectrum.

Commercial lenders want to see anywhere from 20% down to 35% down. Now this doesn’t mean that it has to be your money, it can be your partners 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 table.

Start looking into some of the financing options that are available to you. Talk to a lender and see what they think you need to be able to purchase self-storage. As always, happy investing.