All Forum Posts by: Amber Cerone

The quick numbers look good, I would check to ensure there are no other liens on the property.  This has already gone into foreclosure or is it still in pre-foreclosure?  If you can get the funding and everything checks out I think it is a no brainer to make a deal for the $270k JMO

@Pete Johnson

I did 3 DSCR loans last year and they worked out great. And one was a bridge loan for a rehab then refinanced it 3 months later into a 30 year fixed with them. They all worked out great and they only asked me for my last 3 months bank statements. That's it! No W2, tax returns etc. Easiest and quickest loans I've ever done!

i think more importantly is to see what the terms are on acceleration clauses. 

The reason the purpose of the loans are so important are to protect the lenders from violating different laws. I'll give you a super simplified example: if you buy a property and say you're NOT living in there, and then you do move into it; now the lender could be in violation of a litany of laws, including consumer protection laws, just based on what disclosures they did or didn't send out to you during the loan process, the rate, the fees, the terms, etc. Now they get in trouble because you told them one thing but did another. Not saying that's the case here, but there's a reason they are so particular about the use of funds. 

sounds like a step-down prepay, which is typical. But see if you can get an idea of reasons why the lender could call the note due (AKA "acceleration clause). If they find out you've changed your mind and started converting to residential, are they going to stick their hand out and immediately demand the entire balance from you?

Added: it will cost you a lot more to refi out of this once you close on it. It might be smarter to stop this loan and start a new loan for what you intend to do. I'd hate to see you throw good money after bad, with a 5% prepay in year 1, that's likely what would be happening, and that's not even taking into consideration the origination fees and transactional costs (title/escrow) you'd be paying AGAIN on the new transaction. 

 5% of $300K is $15K...so the most you'll pay as a prepayment penalty is that. I think you have options. Your Principal and Interest Payments will be about $2200/mo. You'll want to calculate in taxes, insurance, and other costs to see what your rental break even is. Do you know how much you can rent it for? If you do rent it, will you be cash-flow positive? The issue is that the loan is being underwritten as an owner-occupied property. Renting it might give the bank heartburn vs opening a shop. They likely will take issue with that and might call the loan. Do you still plan on doing the retail shop? If not, I would certainly have a chat with the bank to get their take on it. A local bank is going to want you to set up your operating business accounts for the shop with them and they will monitor it closely. You won't just be able to sneak it by them in this instance if you choose to rent it. How much time before you have to close? If it's more than 3 or 4 weeks, you might have time to do more options. 

If it's a normal commercial loan, you're likely looking at a prepayment penalty of 6 months worth of interest. How much earnest money do you have "hard" (non-refundable). Are you going to hold it for 5 years? Can you still buy-down the prepayment to say three years? What are the loan terms (rate, etc)? How does the prepay work? Is it a 5/4/3/2/1 or a some other type of prepay? In order to truly answer your question, I think I need to know more. You are correct about a credit union or bank doing an annual review. They will be sticklers for the loan covenants...much more so than Fannie Mae or Freddie Mac would be for a residential loan. I was a commercial banker for a long time and did a lot of loans like this. I'm not thinking your necessarily in a bad position with this loan, but I would need to know more to give you the advice that you seek. 

Amber,

Make sure you check out the terms of the deal on the prepayment penalty that's a biggie. Second, a little more info on the property would be helpful. Is this a retail shop mixed use or what? I can help you locate some good local mass lenders if you can sow together a successful exit strategy without penalty. send me a pm

Hi Amber, excited to see how the journey goes for you and welcome to BP! I similarly left the corporate world as an investment manager and focus 100% on real estate now. Happy to talk anytime to share my experiences as an investor and someone who also lives on the South Shore - would be nice to connect with another local!