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All Forum Posts by: Leslie L.

Leslie L. has started 4 posts and replied 15 times.

Bill Gulley and Ben Leybovich thanks for you answers.

So let me get this straight, for the most part in order to creatively finance 95 or 100%, there needs to be a value add situation in place so that you can increase the value of the property and then refinance out of the private note?

Ben, when you use a debt partner like this, how long is their note period? One year, three, five...? Is your goal to always refinance at this same time it comes due so you can cash them out? Have you ever had fears that the property wouldn't appraise for enough to refi and pay the private lender back?

Also, when you buy a property, do you get it under contract first and then line up your financing after that? How many days do you typically give yourself within your contract to finalize your financing?

Thanks so much!

Bill Gulley Thanks so much for the comments and information.

I just listened to the podcast from Ben Leybovich and that really helped me too when he discussed creative finance, even 100% finance. He was talking about a deal on a 10 plex he just did where the bank gave him 75%, a private debt partner gave him 20%, and he put up 5%. Even after debt service it cash flowed at $100 per door.

I guess from what I can see is it all comes down to how good the deal is and if you can prove to the bank that even with the added debt service you can show good cashflow and a good DCR.

I have been able to talk to a couple of people since I originally posted this comment and I also learned that many commercial brokers don't necessarily require you to have funds in place or expect it before you start working with them looking at deals. A family member is actually selling a 15 unit complex right now and they just received an offer that is completely contingent on the bank approving the financing. The earnest money that was put down was only $5,000 as well.

I guess that speaks to the point of finding a deal first, putting it under contract and then setting up the financing of it.

Thoughts anyone? I'm still not completely understanding this.

I also have another question about the cash reserves and net worth aspect that banks look at. I can totally see their point of view and I realize why they do it however I also know that there are people who have gotten commercial financing through a bank without meeting your above stated requirements. For example, I know of somebody and have actually spoken to them about their deal where they acquired a 20 unit multifamily and they only had about 5% of the purchase price in their own money. The bank required 25% down and they borrowed the other 20% of the downpayment from a private investor who was a debt partner. The bank was completely fine with this and they didn't care nearly as much that this persons net worth was low and they didn't have a big cash reserve because they knew it was a great deal. The deal provided a 1.6 DCR even after paying the private investor.

To clarify too, this is a real person with a real property and a real deal. It wasn't just some story online from a guru to sell a bootcamp. I actually spoke to them and verified it. It also was very recent too so this was not back in the days when banks would lend to anyone who was breathing.

I have spoken to others as well who have some somewhat similar stories as this one. Since these are real deals I guess I'm just wondering how they are able to do this without a lot of financial backing behind them and even a limited amount of experience. And I repeat, these were NOT Guru stories.

Thanks so much for the help!

Thanks Bill for the info.

I do still have a question though.

I know that commercial mortgages are based more on the merits of the property compared to residential. For example when you go buy a house they look at you as the borrow and your ability to pay the mortgage back based on your income. With commercial though they look at the property and how good the numbers and such as the DCR and such. I realize they also look at the borrower and their experience and capital and such but that it comes down to the numbers on the property.

Because of this, when dealing with commercial multifamily, wouldn't you have to get a deal under contract first and then go to your bank and show them the numbers? It would seem completely backwards to do it the other way around. I don't think any bank in their right mind would pre-approve somebody for a commercial mortgage like they do with residential without actually seeing a property and analyzing the numbers. Is that right or wrong?

I have heard multiple times here on BP and other places that if your deal is good enough, the money will find you if you look for it. I just don't understand how anyone can have financing lined up beforehand when the entire basis of the financing comes down to the properties numbers. And if this is true, you can't have real concrete numbers until you actually have a property under contract. Anything before that is based on hypotheticals and what ifs.

Bill Gulley Yeah, sorry about that, I should have been more clear. I also completely agree with you about it being better than single family. I know it has been debated a lot here on BP but I tend to side much more with the multifamily way of thinking.

Bill Gulley I'm really just referring to multifamily and how the financing process works.

Hi Joel, Thanks for the information.

I guess that leads me to another question. When dealing with commercial mortgages, isn't the basis of the loan on how well the property performs and not as much on your income as the buyer? Wouldn't that mean that you can't just go to a bank and get get pre-approved for a commercial mortgage?

I always thought that you would have to find a deal and get it under contract and then show it to your bank so they could decide if they were going to finance it. It would seem kind of counter-intuitive to me at least to try and get your bank to fund a deal that you don't even have yet.

How does that process work?

Steven Johnson
Thanks for your reply.

The goal here isn't actually to wholesale at all. It is for me to partner with private investors to purchase a property. I don't want to be the middleman at all.

Basically what I'm trying to find out is for commercial property, do you need to have the funds in place before you start working with brokers and making offers on properties. Like I mentioned before, I know that with residential, you need to have a POF letter or be pre-approved for a mortgage before you can really work with an agent and make offers. I'm just trying to figure out if this same principle applies to commercial.

I have read a couple of articles from people insinuating that you don't necessarily have to have the funds in place when you work with brokers and make offers but they have not really come out and said that so that is why I am asking.

I agree that you need a list of potential investors before making offers because without them, you could get a deal under contract and not have any way of financing it.

Any insight anyone?

Hi everyone,

I have a good understanding of how residential RE works and how to go about purchasing but I would really like to know more about commercial.

I know with residential when you are working with an agent, you have to be pre-approved and basically have the proof of funds in place before you can even make an offer.

With commercial however, do you have to have the proof of funds up front when you make an offer? For example, say I look at a 20 unit multifamily property. I like the property and the numbers look great. I make an offer on the property and it is accepted by the seller. Along with this offer I give them the earnest money deposit. My goal in financing the property would be to bring in a private investor to put up all of the down payment and then get a traditional commercial mortgage for the rest of the purchase price.

Is this how purchasing commercial property can work? Can you put a property under contract without the funding lined up right away with the intent of bringing in a private investor to fund the down payment? In essence with the earnest money check, wouldn't that show that I am committed to the deal because if I couldn't line up my own funding before closing, I would lose that money.

Just in my thinking it would be easier to attract private investors to a commercial deal if you already have it under contract and can show them real numbers instead of pro-forma numbers based off of some hypothetical property that might not even exist.

Thanks BP!