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You raise good questions:

I used to think that, too. However, after some additional training the answer in each case is actually "No!"

Depending on the property, there may actually be several different ways in which to purchase without having to come up with the downpayment and closing costs.

In some cases, you may only need to prove that there is sufficient value in the asset being purchased to give you the 100% financing. For example, one customer is buying a multi-million dollar property well below the appraised value and looking to do a major rehab or teardown and start over. Our lender is willing to consider the financing of the whole project.

Another possibility is to look at a joint-venture structure where you have a financial partner putting up the money in return for a share of the project. If you find a good enough deal, it's very possible to do this -- and still make good money. Remember, 50-75% of something is a LOT better than 100% of nothing!

A different, and perhaps preferred, approach would be to use a Private Lender. In this case you'd work with someone who has available capital that is perhaps sitting in a bank account, CD, IRA or 401K and who wants to earn a higher rate of return on their money. You could borrow enough from them to Close the transaction and pay yourself some money up front for putting the deal together (say $5K), and secure the loan against the property at 10-12% (as a 2nd), either with or without monthly simple interest-only payments. Personally, I'd prefer to have it without monthly payments. I'd try to structure it to let the interest accrue for a period of years or until I sold the property and paid them off.

Ohio Realtor -- Quite possibly the same people who think they should get more than $60,000 above what EZLoanz says the property is really worth (at market rates - not what the property is doing right now). In reality, don't people do that all the time? They deposit money into a bank in a CD, let the bank use their money for 12 months at 5% or less, and let the bank collect on interest payments they earn loaning our money out to somebody else at higher rates. (Technically, with the Federal Reserve structure the bank will earn a lot more than that on our money.)

NOTE: If you're going to buy a Commercial Property, make sure you set your purchase price based on what it is currently producing, not its potential! You use the property's potential income to determine why you'd want to buy it, how you're going to hold it, for how long, how you want to structure financing and exit strategies for your best benefit, and to measure your profit potential!

Kelvin

What Everybody Should Know... About Financing Income-Producing Commercial Properties!

Whether you’re new to commercial investing or have been doing it for a while, it is easier if you know a few of the secrets about financing income producing commercial properties, like why Bigger is often Better! Now, you may already know a lot about it… or just a little. In either case, there’s more to learn. Believe me!

If you’re just starting out, great! Keep an open mind. If you’ve been doing it for a while and want to see if there’s a way to improve on what you’ve been doing, that’s wonderful. But you, too, need to keep an open mind, because there’s more to learn. So let’s get started on making you some more money!

When I’m talking about commercial properties, I’m primarily talking about properties of more than 20 apartments, a commercial office building, a strip mall, or something larger. But since you’re probably familiar with apartments, whether it’s a triplex or larger, let’s focus on apartments. One of the reasons for having at least 20 apartment units in a complex is to allow you a lot better protection and control. If you have one vacancy, it only represents 5% of your income where on a single-family home, you’re 100% in the hole every time you have a vacancy. That’s no fun. Ask me how I know!

As a former residential investor, I got tired of dealing with tenants on my single-family properties, even though, in my case, most were supposed to be set up for lease-purchases. Sometimes, tenants would back out and I’d have to start over. Sometimes, the tenants wouldn’t pay on time and had me scrambling around to pick up their slack. After all, if they didn’t pay, does that mean we don’t need to pay the mortgage? Then, what about the messes and having to fix up the house again for a new tenant/buyer? So, as I said, if you’ve got 20 units, it’s not such a big headache. The other reason is that with 20 units, you can afford to give one to an on-site maintenance/management person. This will take a load of work off your hands, still give you the tax benefits, and free up your time to buy more properties. But what about financing them?

Well, you could go to a bank or mortgage company for the financing, get out those tax returns, get ready for them to get into your credit again, … and then the waiting game. As painful as that sounds, it really can be, IF you continue to stay in small properties where you have some limitations on financing choices, i.e., put 10-20% down and either owner finance or bank finance the rest at a fairly strong interest rate and with personal guarantees. Even if you’re able to get 100% financing, that won’t be enough to handle the closing costs.

But here’s another secret to commercial financing: Buy BIGGER Properties! Why? Because lenders will then look at the property and the transaction more than they will look at you personally. When you’re dealing with larger Commercial Properties, Lenders want to know that the property will stand by itself. To get into this level, we’re talking about financing more than $2.5 Million in real estate – and it’s easier above $5 Million. Don’t let the numbers worry you! You won’t even need to sign for the money personally. It’s called non-recourse financing! You borrow the money, but they look to the property to make sure it can cash-flow enough to pay all the bills, pay the mortgage payments, and pay you a reasonable cash profit – like 20% or more. They want to know that you can play in the game, but you can do that by putting a team of professionals together with you as the team leader.

What you should know is that as leader of a professional team, they won’t be expecting you to write a check out to them if something goes wrong… They won’t be coming to get your children, your house, your dog, or your car… That’s what non-recourse loans are about. They just want to know that the property will stand for itself and can pay for itself. One way to demonstrate this in your package is by evaluating the rental numbers:

[b]Number of units x Rent/ month x 12 = Gross Potential Annual Income
Less Vacancy Factor (5% is typical) = Gross Income
Less Expenses, including management (35-40%)
= Net Operating Income (NOI)[/b]

NOI divided by Annual Debt Service should give you a figure of 1.18 or larger (Although some may want you to be at 1.25 or better, we have programs at 1.18 for existing properties and 1.10 for new construction). 1.18 means that you’re expecting to bring in 18% more than it takes to run the property and pay all the bills.

If you’ve been playing the ugly-house game of buying and fixing up properties, consider using that same amount of money to leverage a 92%-102% purchase of commercial apartments or office buildings!

To your investing success,

Kelvin

No.

Jonathan,

There are a variety of properties that can be purchased for far less than 50% down and still be able to afford the payments. These are available all across the country. There are also different ways to purchase these properties and leverage the funds that you have into a much larger purchase.

One of the things I'd recommend is that you find a property that is at least mostly occupied (i.e., 75-80%+) so that you know that you've got income coming in to apply toward the mortgage without having to go deep into your pocket to cover it. There are several ways in which transactions can be structured so that you can cashflow with what you have to invest.

Hi,

It somewhat depends on what you're wanting to accomplish. If it's just to run analysis to figure what's the best market for investing in apartments, that's one thing. If you're looking to analyze the best opportunities for doing commercial investing, that's another.

Some of this will depend on what you want to do, but your sources of capital and your credit might also come into play. It's better to go with a moderate sized loan, like $3-10MM rathern than a small one under that price. This way, you can let the property do the qualifying, since they won't be looking to you to write a check if things don't go exactly right. They just primarily want to know that the property will have enough cash flow to support the operating expenses, debt service, and leave room for profit for the owner.

Hi,

For additional information. analysis package, and an information DVD, you might check out http://www.betcoinc.com/index.html who we researched for one of our clients, along with Morton that was mentioned by someone else in one of their posts.

Kelvin

Can you elaborate a bit more on what you want to accomplish: buy, hold, flip, sell products to, services? Also, are you just looking for the N. Charleston area?

Kelvin

Glenn,

I've been caught in some similar situations on residential properties while trying to help out some other people. I feel for you.

But keep your head up. There are still plenty of opportunities out there to turn your investing around and make a big change.

Kelvin

I started with residential but I'm learning to like Commercial a lot better.