All Forum Posts by: David Rutledge

I am a relatively seasoned investor with over 10 rentals but I just closed on a property in North Park, San Diego where the plan is to make some additions and add and ADU on the lot. This is the first time I am embarking on a project like this so the learning curve is steep.

The plans are in the final stages of approval with the city and I have multiple bids from GCs based on those plans. I plan to meet with 2 or 3 GCs this week to walk the property and discuss the project further.

I was hoping to get some advice from others on here about what kinds of questions you would recommend I ask other than the generic obvious ones. I have no prior experience in construction and have never worked with a GC before. This is a fairly large project so I am trying to ensure I do as much due diligence as possible before choosing a GC to work with.

Any feedback and/or guidance on what kinds of things I should be asking would be very much appreciated.

David

0 Votes

San Diego, California

Thanks so much Steve!

0 Votes

San Diego, California

Good afternoon,

I was not sure where to post this question so my apologies if this is in the wrong place.

I am looking at some opportunities to buy an existing duplex or sfr in an RM area with the intention to build an additional duplex.

What I am most concerned about is the ARV value appraising for lower than what it cost us to build. It seems these valuations can be all over the place.

I would like to get some opinions from others who may have done this. Would a duplex that effectively becomes a 4plex receive a favorable valuation or would it be considered an "accessory" and thus not be valued at what we put into it. This is what I am seeing a lot of when combing through some older posts.

Thanks in advance

David

0 Votes

San Diego, California

Quote from @Mike Dymski:

Contact TMC Financing https://www.tmcfinancing.com/. They are the largest SBA 504 lender in the country. I have no affiliation. Go to their "contact us" page and find the representative in your target market. Plus, they have a ton of information and videos on their site.

TMC is the CDC (community develop corporation), which the SBA delegates their authority to. For an SBA hotel loan, the SBA may guarantee say 30% of the loan and a traditional bank takes the next 50%...total LTV/LTC of 80%...will vary by business but it's higher/better than the previous replies (otherwise, you would just get a traditional commercial loan without the SBA involved). The great part about contacting the CDC directly (and a large one such as TMC) is they can make referrals to banks that would be interested in your project (i.e. banks that have been actively doing SBA hotel loans)...rather than you having to chase down the bank first, which can be very difficult.

Regular commercial lending requirements are applicable (will vary by bank):

1 - no bankruptcies

2 - no foreclosures

3 - FICO > 700

4 - net worth >= loan amount

5 - post closing liquidity >= 12 months of P&I

If this works out, you are going to be glad that you made this post.

Hi Mike,

Thanks so much for this post. This is extremely helpful. I will absolutely contact TMC!

I really appreciate your insight!

David

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Quote from @Evan Polaski:

While you do have some options, from basic research, I am not sure you are going to find anything below 20% down on an SBA loan.

Anecdotally from talking with friends in the business and from a prior role where the company was trying to finance a corporate retreat hotel (admittedly in 2012), the financing of hotels in general seems very, very hard.

https://www.commercialloandire....

While I can't say all the differences, based on what I have read and heard from friends, expect a lot of no's, expect a much higher interest rate and larger downpayment. Expect significant prepayment penalties.

I am just curious if you have thought about your exit strategy if the hotel doesn't work out? At least with most STRs, they are typical homes that will sell to anyone looking for a home in that area. A hotel (barring any major redevelopment) will always be a hotel, with a very finite buyer pool, and even smaller if the reason you are selling is because it isn't generating a good return.

Hi Evan,

Thanks very much for your detailed response. You make a lot of very points.

At this point I am more so kicking the tires on other opportunities and considering my backyard in running STRs successfully getting into a hotel seems the obvious next step in this phase for me but as you mention there are many things for me to consider and learn in moving asset classes.

1 Vote

Quote from @Michael Baum:

Hey @David Rutledge, the purchase of a small hotel is a very different animal than SFHs for STRs.

Like @Luke Carl said, you will have to have some significant skin in the game. More than 10%.

When we looked at purchasing a fulling running B&B it was more like 30% with a bunch of criteria we had to meet.

Check out this link - https://www.sba.gov/funding-pr...

The 504 is for large investments that drive job creation. It specifically says it is not for real estate investment, but I believe you would be buying an operating business vs just real estate.

This is so helpful Michael, thanks so much!

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Quote from @Christopher Price:

Quote from @David Rutledge:

Hi everyone,

I am as told to post this question here but I apologize if it’s out of place.

My wife and I have built up a portfolio of 14 strs over the past few years. We have some capital and are looking to possibly purchase a small hotel.

We have only ever bought residential sfr with conventional financing so commercial lending is totally new to us.

We are looking to put as little down as possible to stretch our capital as much as possible. Ideally 10% down. I’m thinking that an SBA loan would be our best bet but I am not sure.

Can anyone shed some light on what kind of down payment, terms and qualification requirements we would typically be looking at for an SBA or low down commercial loan?

Also as I understand it qualification for these loans are based on the property as opposed to the borrower. So is this just as simple as showing how much the property makes or do they also look at personal debt to income, credit score, reserves etc as well.

Any insight into the kind of options we may have for something like this and how qualification for a small hotel differs from residential conventional loans would be extremely helpful.

Thanks in advance.

Hi David,

Congrats on the success with the STR's! That's awesome.

A boutique hotel is a great investment, assuming your plan is the turn it into a STR hotel as well.

From the commercial side you have more ability to force appreciation by increasing the NOI. Residential is wayyyy different.

Have you thought of doing Seller Finance?!

Thanks Christopher. I am definitely open to seller financing, I just wanted to have a back up plan if we decide on this route and we cannot find a seller willing to carry

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Quote from @Luke Carl:

I think you’ll find any bank will want 25% on it. Unless you have a massive deposit relationship with them like 1m++++ then they may do 20%

That said they will finance the rehab if you’re a strong borrower and it pencils.

Thanks Luc. FYI if it wasn’t for you and Avery we probably wouldn’t be where we are so I cannot thank you enough!

0 Votes

I was told to post this here but I do apologize if it belongs in another category.

My wife and I have built up a portfolio of 14 strs over the past few years. We have some capital and are looking to possibly purchase a small hotel.

We have only ever bought residential sfr with conventional financing so commercial lending is totally new to us.

We are looking to put as little down as possible to stretch our capital as much as possible. Ideally 10% down. I’m thinking that an SBA loan would be our best bet but I am not sure.

Can anyone shed some light on what kind of down payment, terms and qualification requirements we would typically be looking at for an SBA or low down commercial loan?

Any insight into the kind of options we may have for something like this and how qualification for a small hotel differs from residential conventional loans would be extremely helpful.

Thanks in advance.

1 Vote

Hi everyone,

I am as told to post this question here but I apologize if it’s out of place.

My wife and I have built up a portfolio of 14 strs over the past few years. We have some capital and are looking to possibly purchase a small hotel.

We have only ever bought residential sfr with conventional financing so commercial lending is totally new to us.

We are looking to put as little down as possible to stretch our capital as much as possible. Ideally 10% down. I’m thinking that an SBA loan would be our best bet but I am not sure.

Can anyone shed some light on what kind of down payment, terms and qualification requirements we would typically be looking at for an SBA or low down commercial loan?

Any insight into the kind of options we may have for something like this and how qualification for a small hotel differs from residential conventional loans would be extremely helpful.

Thanks in advance.

2 Votes

All Forum Posts by: David Rutledge

David Rutledge has started 72 posts and replied 242 times.

Post: Questions to ask GC

Post: ARV for ADU project in San Diego

Post: ARV for ADU project in San Diego

Post: SBA loan for small hotel

Post: Commercial lending for boutique hotel

Post: SBA loan for small hotel

Post: SBA loan for small hotel

Post: SBA loan for small hotel

Post: Commercial lending for boutique hotel

Post: SBA loan for small hotel