All Forum Posts by: Michael Blank

Jeff, assuming the property is turnkey and doesn't require any deferred maintenance to be taken care of, I use $250/door for capital reserve per year and 10% of income for repairs and maintenance for a C/C+ property.

Michael

Local banks are definitely way to go for smaller deal sizes. You won't get "pre-approved" for commercial property as you do for residential property but you should establish relationship with a handful of lenders. Before I got my first property, I created a fictitious deal package and used that when meeting lenders. I used the meeting to give them a chance to know me better and do some light underwriting of the kind of deal I was looking for. I also wanted to better understand their requirements and the potential terms I could get. I also want to understand what they want in a loan package.

I do this all upfront.

Then, when you have a property under contract, the lender already knows you, and you can create a loan application package that he's looking for. The result of all of this upfront work is that you'll be able to get your loan faster when the clock's ticking.

Hope that helps!

Michael

Hi Victoria ... I bought my first 12-unit apartment building in Washington DC 2 years ago. This was a big scary step for me. But surprisingly, as I was doing due diligence, I was becoming more and more comfortable with the idea. In fact, by closing, I wished the building was bigger!

What I'm saying is, the reason we don't get started with commercial real estate investing is because we tell ourselves we can't do it, and our best friends and family members agree! This was (and still is) very frustrating to me.

I found that I actually had to stop being friends with certain people and start making friends who actually want me to succeed.

The other factor is your mind. We limit ourselves because we're afraid, or we're uncomfortable. So you must continually work to expand your comfort zone.

The way I still do it so to look at a lot of deals that are outside my current comfort zone. So for example, I can see myself doing a $2M deal, maybe a little more, but I have a hang-up with a $5M deal. So I request marketing packages for $5M deals, run the numbers for them, do my analysis. I even go on a property tour. The more I do this, the more I act "as if", the more and more comfortable I get, and the more I can visualize myself doing a deal like that.

Also, in the beginning, I read every possible real estate book I could get my hands on. I would also strongly consider taking a course or seminar. These can help expand your comfort zone, learn skills, and maybe avoid some mistakes.

Hope that helps!

Michael

Hi Bill,

First, kudos for embarking into commercial real estate, I think it's the best way to create long term wealth. And you're getting started early, good for you!

You had some questions about financing.

Seller financing is great if you can get it. You should always ask the seller. Maybe offer a little bit more (even above asking) to sweeten the deal.

The best source of financing is still a traditional commercial lone. As Colleen pointed out, a 5+ unit will be considered a commercial loan. But even for my 12-unit we bought two years ago, your personal financials unfortunately still play a major factor in underwriting.

But you already have a lot of the minimum requirements for qualifying for a loan. You have cash to put 30% down - most banks look for 25% or 30%. Check.

The building is 100% occupied. Very good. The bank will want to see the financials obviously. But an occupied building is easier to get financing for than a vacant one. Just make sure you try to verify the actual rents collected. The best way is to get actual bank statements from the seller. You may not get all of the documents you request, but you must INSIST on verifying the rents actually collected.

The one thing you may be weak on is track record and personal financials. OK, not ideal, but you can overcome this. Here are a few tips:

Tip #1: Create a one pager about yourself. Write down anything you've done and succeeded at. Show the lender that you have a track record of success and are ambitious. Also mention your partners. If your Dad is in real estate, list him as a partner and mentor, and describe his experience. List your CPA, especially if he has real estate experience. Do you have a real estate attorney? If not, find one, then list his bio also. All of this adds to your credibility.

Tip # 2: Find a strong financial partner. For smaller properties, the bank will want personal guarantees, good credit and minimum liquidity. (Interestingly, the larger the deals get, with loans > $1M, the chance of getting non-recourse loans, i.e those where your personal financials play less or no role at all, become greater). Since you do have resources (your family & friends), find someone who would be willing to co-sign the loan. In return, you will give them a % of equity in the building.

Tip # 3: Talk to local banks. Avoid the national or regional ones. It's much more about relationship with the small local banks. Schedule appointments with several local lenders. Show up with your one pager. Put together a short financial package of the deal you're looking at. Even if you don't have the property under contract, make up a deal package anyway. This will give you a much better chance to make a good first impression.

I know you can do it!

Michael