All Forum Posts by: Joseph Gozlan

 6% cap in a 7% interest rates environment is going to be challenging. The other challenge as mentioned above is that the bank will consider it risky to give you a 5 year term with most leases set to expire in 1-3 years. 

That aside, to answer you question, these size of assets are normally financed by local banks (small to regional banks and credit unions). They will normally lend on a 3-7 years term, 20-25 years amortization and will be pretty firm on a 1.25 DSCR (which in most cases drive your LTV down below the 75% mark).

The rates are usually coupled with  the Prime index (about 7% today) so you rate will be in the [Prime +/- 0.5%] range.

Here is a link to a commercial mortgage calculator I like to use: https://calc.ebgtx.com

@Juan Aguirre your numbers are great for an experience investor that can handle financial surprises.

It seems that your underwriting depends on being fully leased in 6 months or less and the tenant paying the TI what happens to you if one or both of these assumptions prove wrong?

Can you carry for 8 months? 10 months? What if you get a dentist that wants to lease the space but needs over $250K to prepare the space for their needs?

This can be a great deal for you but you also should keep your eye open and accept that high leverage (in your case 90% LTV) with no contingency plan can be very risky. Just my .02

@Javier Osoria the most important question an investor should ask a potential agent is: "Are you an investor yourself?" and the second most important question is "Can you please tell me about your investing experience?"

An experience investor/agent can offer you a LOT more than any other agent out there! Would you buy stocks from a broker that doesn't believe in the stock market? Would you go to a dentist that only has 3 teeth?

@Brandon Bass A few things to ask/consider:

1) Why do they ask for seller financing? Some people are not bankable just because they are a business owner and conventional lenders don't really know how to comprehend complicated tax returns. Others, on the other hand, are not bankable for a good reason! Figure out the reason.

2) Texas is a homestead state. If they move in, eviction can be more challenging than if they were buying it as an investment.

3) Like was mentioned before, if they can't get a conventional loan today at 8% what makes them think they will be able to get one in 3 years?

4) with a 20% down, conventional loan for someone with good credit would be in the 6.5%-7%  (which makes their 8% offer another flag)

5) No matter what you do, make sure it's YOUR attorney that writes up the documents for the note and VERIFY the note got recorded by the title company after closing.

Good Luck!

 When you have 5-10 years lease with predetermined rent bumps, how would the "potential rent" be relevant? You only get it if the tenant defaults on the lease or chooses not to exercise an option to extend.

In the apartments world we use a standard lease form (usually the state's apartments association's form). In commercial, especially in NNN leases where there's a national grade tenant, it's a lot more common to see custom contracts which required deeper diligence and understanding.

@Evan Bonnell I'm not sure what happen to this guy but if you need assistant with NNN or have questions, I'll be happy to help!

@Anna Washburn are we talking about buying the building, the business or both?

That's an interesting approach. One of the biggest advantages of real estate is the opportunity to leverage your money using bank loans. Even if you keep a low LTV it's still worth it to leverage over paying cash in my opinion. That said, everyone has their own strategy and entitled to do their thing :-)

 So what's your current goto strategy? What asset classes are you investing in today? Any other plans for next year already in play?

@Tim Goddard unless these lease are absolute NNN leases then your OPEX will have more than just insurance and taxes.

The importance with these deals is to understand the strength of these tenants (sounds like all are small local businesses) and how long they have been in business (I'd feel more comfortable with a coffee shop that's been in the same spot for 12 years than one that's been there for 2 years...). 

Lastly, I'd make sure to watch the LTV and your reserves. If the economy take a turn for the worse, you can find yourself real fast with 33% vacancy (one tenant) or 60% vacancy (the laundromat) or worse...

That said, I love those small neighborhood service centers as an investment vehicle for the coming downturn. Just make sure you have the reserves to hold in case you need to turn a tenant spot.