All Forum Posts by: Chris Mason

5% with a 5 year maturity is in line with CRE norms. If you were to call me, I'd likely be able to offer a choice of 3, 5, or 7 year maturity, maybe 10, but couldn't touch the 5% as of Feb 2024.

Find out if there's a PPP, also common in commercial. 

We don't know enough to comment on the 'sticker price' of the property, but the financing offered is great. Offering great seller financing is fair and good and useful if it's to get a buyer (you) off the fence or sell the property faster, but ensure you don't overpay. 

 A few tricks that I like to use that will often get the AUS to approve, after it denies at first cut due to "risk layers" (low fico + using rental income to qualify + 5% down + 2-4 unit + 1 borrower):

- Document add'l reserves. On your end, did you upload *all* bank and retirement account statements? And, if so, did the LO document that for the AUS? The AUS likes solid reserves.

- Increase the down payment. Maybe it denies your profile at 5% down, but approves at 10%.

- Shorten term. 30YF is at 40% DTI, maybe 25YF is at 44% DTI, and it likes that better. Just giving the AI Overlords the option.

- Adding the non-income-generating spouse. The AUS likes having multiple borrowers, even if the 2nd borrower adds no income.

If/when your FICO score pops up, I suspect all of this will go away and you won't need to "coerce" the AUS into approving you. 

FYI: If you call an architect or GC and tell them you have this "brilliant never before considered" idea of turning offices into apartments, the architect will eye-roll so hard that they risk permanent blindness. 

Minimum loan amount for us is $500k, and for Agency multi-family you must already have experience in the 5+ unit residential space. If you check those boxes, please feel free to reach out. 

Commercial leases are in the 3-5 year range. So most of the pre-covid ones have already rolled.

I'd focus on the ones that are about to roll. The business who signed a 5 year lease in August of 2019, that's up in August of 2024.

I'd go walk my happy butt into that office space. I know a commercial tenant (colleague) who is paying to rent an office space big enough for 40 employees, but only 5 people are willing to go to the office, so it's a ghost town, obviously they will not be renewing. If a potential buyer were to walk in there, it would be obvious that this tenant isn't renewing, and they'd be a fool to include that rent in their own underwriting numbers. 

Be cynical and conservative, subtract out the rent from any ghost office. Consider making judgement calls beyond just the obvious ghost offices, too.

At this point, since we're at about the 5 year mark, I think things are mostly stabilized. And if that means it's "stable" at 35% vacancy, then don't pay a dollar over what makes sense with perpetual 35% vacancy. The listing broker is going to have a proforma assuming 10% vacancy, throw it in the trash, which is EXACTLY what we are doing on the lending side. 

If that 35% vacancy ever shrinks to 15%, hey, that's your upside, that's why buying an office in 2024/2025 is going to be like buying homes was in 2009/2010 at the bottom of the market. More millionaires were made by those bottom of market home purchases than most other times, I suspect that's what we're looking at for offices this year and next.

Let me know if you want to run financing numbers. 

For smaller loans like that, regional banks and credit unions are often the best fit. Check local to you. Good luck. :)

Pick another $5k to improve the property by. :)

This is a very state specific question. 

 We care a little bit about your W2 income on the commercial side, but not a lot.

If you make $100k/yr and have $400k in your checking account, we're also not going to question it on the commercial side. After 9/11, congress (idiots) was very concerned about Al Qaeda buying residential real estate, but congress wasn't really worried about them buying apartment buildings or shopping centers or aircraft part factories (like I said, idiots). So a lot of the PATRIOT Act nonsense that is now present in residential mortgage guidelines ("derp a lerp, what's this deposit? What's that deposit? Is this <clutches pearls and shudders in horror> gift funds or an outside investor?"), is simply totally absent in commercial lending. 

Get the NOI or cap rate. With cap rate and list price, you know the NOI.

$1m advertised at a 7% cap means the NOI is $70k, or so they claim. Obviously validate that claim prior to closing, but let's not put the cart before the horse.

If you know from prior research that assets like that, in that market, trade for a 7.5% cap, then it's as easy as $70k / 7.5% = $933k.

So $933k is your starting place. And the logic is simple, if everything else like this trades at 7.5%, then why shouldn't this one also trade for that? And that's not a sarcastic question, possible answers include but are not limited to...

If management/ownership has been lazy and there's a lot of vacancy or below market units, that you can rent out and/or bring up to current market, then maybe you offer a little bit more for that upside potential. 

If it's rent controlled and has significant deferred maintenance, then shoot for less. 

Or maybe it's fully occupied, well maintained, professionally and competently managed, totally turn-key, the easiest and most passive that an apartment building could ever possibly be. And maybe the listing broker knows that, that's why they think it should sell at a 7% cap rate, and maybe they are correct.