All Forum Posts by: Kyle Altenau

What are you looking for financing for? Depending on the asset and leverage you may have some options.

Of course. I do recommend trying to work with a local mortgage broker in the future too. Specifically a commercial mortgage broker. They will have intimate knowledge of exactly what banks are lending in that area and of what terms. They also may have a dozen other clients they can dangle in front of a bank and leverage to get their clients even better rates. In theory, if you're working with a good broker, they may have been able to bring the exact same file to the same lender, but got you better terms in return. 

The deals you've seen in the 2% range, may be well timed (or lucky) swap deals. There may also be some unfavorable sides of the terms they're not showing. 

I know it's been difficult for a lot of borrowers to get cash out in some of their refinances and a lot only have the option of rate and term refinances. It's always worth looking into but if you have a term sheet or commitment that may be expiring, you may want to act before you lose what you have. 

In the past 30 days or so I closed a bridge for medical office, raw land, a couple residential fix and flips, retail (single tenant and deemed essential). We've definitely been pickier. There was a 25 unit vacant building in a rough area we passed on that we may have been more interested in 6 months ago. We are definitely underwriting sponsors and cash flow much more tightly too. We have tightened but still closing bridge loans. I know some others in the area that are similar. 

See if they adjust for neighborhood on the appraisal. Just because a comp is on an appraisal doesn't mean they're saying they're the same value. They make adjustments for all aspects of the differences in the property including location. Are they in different school districts? Compare single family home values of similar homes in both school districts to prove a discount in the other district. Same for relative neighborhood. Find a bunch of single family sales in your area and compare those to similar single family homes in the other area. You can show with actual data that homes sell 25% higher in your area for example. The reason I suggest using single family homes is there will likely be more single family sales than other types. If there's enough 3 units use that.

They can also use other sized units closer to you and adjust based on unit count. I had a renovated 4 unit that had a duplex and triplex used as comps on because there weren't any 4 unit comps. 

@Chris Mason maybe it's regional but in the NYC metro area they're available. Not as widely available as they had become pre covid-19, but they're available. 

Bridge loans can be very powerful when used correctly. Their rates are higher, but their terms are typically much more flexible. A lot of time your options are, use bridge financing, use cash, or don't get the deal done. A lot of investors need to use leverage to operate their business best so a lot of times it comes down to use bridge financing or pass on the deal. The key is to execute the deal efficiently so you're either selling the property quickly or refinancing into more traditional lending options at a much lower rate. 

I'm assuming with your mother's deal it's fully amortizing (at the end of the 18.3 years it's completely paid back), she's basically not earning any interest then. She'll earn less than 10% on the money in 18 years. Most private lenders get 10% annually. If she's okay with it, though, good for both of you. 

It looks like the easiest thing to do with your brother would make an LLC where he owns 1/3 and you own 2/3. You can split profits at that rate. You'd have to figure out a fair "rent" to charge yourself and apply that to his portion to to be fair. That's just one idea. There's unlimited numbers of ways you can structure these.

As far as their returns go, you should model out your next potential deal and include the cost of their capital. Put it at different levels and see what it does to your returns. How much are you willing to give them and give up yourself? I think that's a good starting point. 

The way they're secured will also drive what their returns should look like. If they're equitable owners theoretically it should be a bit on the higher side, but tied more to the profit of the venture itself. 

You can do it more like mezz where maybe they get a preferred return and then there's a waterfall of profits after that. 

Then there is of course a loan. It'd most likely have to be unsecured, if you wanted to get senior debt on the project. Unsecured debt can be expensive too.

At the end of the day though, I'd try to get a feel for what kind of returns they'd expect. It can be an awkward conversation to start with family sometimes, but remember they came to you. You're not going to them begging for their support. I think you'd be surprised with how low they'd be comfortable with. In my experience, I've offered higher returns to family that's invested in my projects because they didn't ask for enough. 

As for the actual deal structure. You need to speak to a lawyer and have them take care of it. It'll cost you, but it's the cost of doing business.

If they're looking for a 10% return on $100,000 just add $10,000 into the debt service on your income and expenses. Then your cash flow will take in to account the payments made to them and you can gauge your ability to service their debt. Aside from giving them a 10% return. How long do you have until you're supposed to pay them back? What is your plan to pay them back?