All Forum Posts by: Kyle Altenau

@James Montague without knowing much about the property itself, $100,000 to take a completely gutted property to 9 complete units seems like a huge under estimate. 

Some quick napkin maps. Let's make the following optimistic assumptions on material costs

Cabinets - $2,500

Appliance package - $2,500

Counters - $2,000

Total just on those is $7,000/unit. At 9 units that alone puts you at $63,000. 

There absolutely could be something I am missing, but I would take a hard look at the work that needs to be done, and what a realistic budget looks like. That will greatly affect what financing options are available to you. The last thing you would want to is get into this deal and end up with only enough liquidity to get the project half done. 

If you get pre-approved for a hard money loan, they sometimes will provide you with "proof of funds" letters. They aren't the same as having cash proof of funds, but usually the letters will mention they've already done a significant portion of their underwriting and can close quickly.

You could also try and structure your offer so that it puts more risk on you. For instance, you can put a larger deposit down, a quick closing period, and also waive a mortgage contingency. This obviously puts a lot of risk on your shoulders and you'd only want to do this if you are very confident you'll be able to perform, but it's one way to make your offer more attractive. You'd want to speak to your attorney about some of these options for real guidance though.

Some commercial lenders will allow you to to close without a personal guarantee. Typically they will be for larger transactions. They'll mainly underwrite the asset and it's cash flow. Aside from higher interest rate you may also find lower amortization. 

They will mainly underwrite the asset, but will also want to look at your personal financials as well. Even though, they're not taking a personal guarantee they'll still want to see strong personal financials. 

@Gerald Koonce most hard money lenders won't mind only financing the construction as long as they're not going to be in a second lien position. The only caveat to that is, you may end up falling under the minimum loan amount depending on the lender. Most have minimums of $100,000. I saw that you put $80,000. If they have a $100,000 minimum, I'm sure they'd be willing to look at it and then they could use the extra equity you have in the deal to fund closing costs. 

I'd look into SBA if you are going to occupy at least 50% of the retail unit. Make sure you are not a single square foot less than 50% on any leases/agreements.

If you go commercial, I'd think that the lender would rather have an established owner occupant business than just completely vacant. If your company went belly up, then they'd be right back at where the property currently is...vacant. 

I just want to make sure I am understanding it correct. You sold two properties and kept a $100,000 note and a $170,000 note? Do you have a first mortgage on these properties? If you do, you may be able to find note on note financing, but typically these outlets are for more institutional borrowers, I'm not sure if there would be any willing to lend at that amount and to an individual. 

You may also be able to find a private lender that would be willing to secure a loan with those notes as well. 

Since you'll be getting a commercial loan, you will most likely be required to put it into some kind of single purpose entity (LLC).

As for the lease with the retail units, @Lizzie Carver pretty much covered everything. The one thing I would add is that the status of your lease with the retail tenants will affect underwriting with your lender. They'd prefer seeing credit tenants leased up for as long as possible. In your situation, the focus would be on getting them on a longer term lease, but again, Lizzie covers that in her comment. 

Finding financing for retail is very difficult right now, so if you have a lender willing to lend on it, that's great. I would think it'd especially be difficult with MTM leases. It may be more regionally affected as I'm in the NYC metro area where retail was shut down much longer than other parts of the country. 

Another thing to remember, is that a lot of retail was hurt badly by Covid-19. A lot shut down permanently and a lot of people that may have been thinking of opening their first location or additional locations may be opting not to now. As a retail landlord that will affect your ability negotiate the lease. Up until a few months ago, landlords held the power, but since Covid, that has swayed the other direction. I'd do some market research and make sure those aren't going to be sitting vacant if the tenants leave. That could be the real reason the seller is selling. The "I don't want to be a landlord" reason could just be to prevent you from getting spooked and walking away. 

It looks like on their website that they are actually private money brokers, not lenders. A Google search brought up their page on the Better Business Bureau which doesn't look too good. I've never dealt with them personally though. 

I'd tell them that you got more favorable terms elsewhere. Whether it's rate or leverage or something else. Lender 1 may be able to do better. This is how the business works. As long as your respectful and professional there's nothing wrong with saying "Lender 2 offered me some better terms. They're x,y,z. Can you match or do better?" Then lender 1 can make their own business decision. 

If anything, I'd try and push amortization to 25 years. If you're looking to leverage and grow as much as possible, that 5 year difference could end up making a huge difference. If not, maybe they can do a little bit better on rate.