All Forum Posts by: Chris Pochari

Chris, you are asking the right questions and there are lots of paths to build that net worth through REI or to acquire properties without it. This is a radical example (and I will come back to less radical examples in a minute) but an investor could sponsor a $5mm commercial real estate investment, have high net worth key principals in the deal, put no money down, collect the $1mm down payment from passive investors and take a 30% ownership interest (among other possible compensation...origination fee, management fee, disposition fee). The sponsor just acquired $300k in equity (30% of the $1mm). Let's say the property is improved and the value increases and is sold for $6mm, the sponsor gets another $300k (30% of the $1mm gain) along with it's share of cash flows from the property and the fees I mentioned along the way. This is hard work and takes intelligence and time to build up to but there are many investors on BP reading this post who do exactly this type of work.

I started with a radical example and this can be done on a much smaller scale with partners and investors on any property under a number of deal structures. An investor can also use their own capital and invest in properties where they can add value and create equity...a flip being the clearest example to use. Many investors on BP started with limited net worth and built it up through the use of adding value, using OPM, sweat equity, hard work, appreciation...all the above. Good luck with that journey.

Thanks, great advice

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Originally posted by @Wendell De Guzman:

Originally posted by @Chris Pochari:

Hi guys I'm new here but I've been puzzled over this question for a while. If commercial mortgages require that the investor have a net worth equal to or greater than the loan amount than isn't the idea of a 30% downpayment ridiculous? the real downpayment would really be 100%? Say someone had a $120,000 to invest, most real estate gurus would say that you could obtain a 400,000 mortgage right? Well not really because if the bank requires your net worth to be equal to the loan amount than you could only borrow $120,000.

Chris,

For the smaller deals, there's no correlation. However, when I assume a $5M loan for a 133-unit apartment building, one of the requirements of the lender was that the net worth of the borrower has to be equal to or greater than the loan amount.

Having said that, each lender is different so get a good commercial mortgage broker to find the best lender for you.

Also, the downpayment that you have is not equal to your net worth. If it is, that means you're putting everything that you own as the downpayment and if I am the bank I will be worried too. If you default, I have no way to recover my loan from your other assets.

Net worth = value of your Assets less Liabilities

Cash is just one asset

You can have equity in other properties you own

Equity in the stock market

Equity in the home you live in now

Equity in businesses

etc.

Yes but equity in the stock market, retirement account etc isn't going to be anywhere near the amount of the loan!!

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@Ian Walsh Neither did I, this is for Fannie Mae financing

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Originally posted by @Andrey Y.:

Originally posted by @Chris Pochari:

@Todd Dexheimer If i was making 500k a year I probably wouldn't be asking these types of questions :)

Plenty of doctors make $500k/year and don't know the first thing about commercial loan qualifications / real estate etc.

I might be making 500k when I'm 60 years old and own 250 units! not anytime soon though and most real estate investors are not doctors making 6 figures!

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@Eric Schleif Thanks, I guess the question is solved! The reason I asked this is because I looked at the fannie mae mulitfamily website and it says it requires the borrow to have a net worth equal to or greater than the loan value. That's the only reason I asked. So having a net worth equal to the downpayment would be enough to qualify?

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@Todd Dexheimer thanks for the answers, on the net worth issue I was referring to 5+ commercial properties.

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@Andrew Cushman but isn't that strange accounting? that means it's really a 100% downpayment! If you can only borrow up to the amount of equity you have, how can that be considered leverage? It should more appropriately called cash out refinancing instead of a mortgage!!. Maybe we're on different wavelengths!

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@Eric Schleif So even if I didn't have a partner with a 3 million net worth I could still buy a 3 million apartment with a million in equity?

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@Eric Schleif Ok thank you, I have another question. If I had 1 million in equity and wanted to use that as a downpayment for a 3 million dollar apartment could I do that?, or would I need a partner who has a net worth of at least 3 million? Assuming I had enough experience and necessary cash reserves.

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@Eric Schleif If someone had a job making 60k and owned 2 duplexes cashflowing 20k/year would the bank count that income has additional income needed to qualify for more purchases?

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All Forum Posts by: Chris Pochari

Chris Pochari has started 1 posts and replied 12 times.

Post: Net worth must be equal to loan amount?

Post: Net worth must be equal to loan amount?

Post: Net worth must be equal to loan amount?

Post: Net worth must be equal to loan amount?

Post: Net worth must be equal to loan amount?

Post: Net worth must be equal to loan amount?

Post: Net worth must be equal to loan amount?

Post: Net worth must be equal to loan amount?

Post: Net worth must be equal to loan amount?

Post: Net worth must be equal to loan amount?