All Forum Posts by: Michael Worley

 I am a banker who lends money on commercial properties. Commercial loans are typically 5 year maturity with between 15-25 year amortizations for recourse loans, and up to 10 year maturities for non recourse. Commercial loans are very flexible on terms so the dispersion of what they look like is pretty wide. That being said, 5 year maturities are definitely the most common.

This is not correct. It is standard practice at most banks to inspect a property physically. Most commercial loans are 5 year maturities so having bankers around a property is very common.

As the title suggests, how do you go about writing a blog post for BP?

Actually, LLC is NOT an IRS tax entity. It defaults to sole proprietor but with form 8832 an LLC can be taxed as an S-corp, C-corp, partnership or Sole Proprietor. If you think LLC is a tax entity I encourage you to investigate it more thoroughly.

I would never personally consider an offer without an option payment if an option period was requested as serious. Your agent is correct.

Question, if it's greater than the mortgage owed, then just buy it from the owner of the property which is the one who owes the mortgage. They have the right to sell or not as the owner. If the Bank Owns the property then there is no mortgage owed. If the bank forecloses on the property but has not yet sold it at auction, the owner of the property can sell it up until the auction date. If they owe less than the sales price, the bank has no say in if they can sell it or not.

Option money is standard.

Put another way, what incentive does a seller have to give your a 'free look' at an inspection report. To the lawyers in the room, what 'consideration' would have been given to constitute a contract if no money was changing hands for the option period.

We all know California is backwards anyway, Texas doesn't do it wrong, you guys do! :)

So many things I want to comment on in this thread.

In no particular order:

To the person that said I use an S-Corp instead of an LLC. They are one in the same for tax purposes and for liability purposes. There are only two ways to be taxed from the IRS's perspective. As a disregarded entity (i.e. the entity itself does not pay taxes, but passes them through to the owners directly) or as separated from it's owners. An LLC can be taxed in the exact same fashion as an S-Corp, C-Corp, Sole Proprietor, Partnership, etc. The IRS has a form 8832 which is how the entity elects to be taxed. So having stuff run through an S-Corp over an LLC is irrelevant.

Owning a property in an LLC vs. personal ownership. For single family homes, I believe LLC's to be cumbersome ownership structures. For Multi-Family LLC's make sense because if you're using commercial loans you'll be refinancing every 5-10 years. Refinancing in a different name than currently titled is cumbersome. So put it in an LLC, use commercial loans and never look back. The simple answer is if you are using residential loans you are better off titling in a personal name and if you are using commercial you are better off titling in the entity name.

If the property you are buying is not currently stabilized, you will not be getting PERMANENT financing through Fannie/Freddie on the commercial side. Expect to personally guarantee the loan until the property is stabilized. (This is not a bad thing as many banks, while requiring a personal guarantee, will also lend at higher LTV's than non-recourse financing).

Know when to expect Interest Only as appropriate and when not to. As a lender, the biggest red flag for someone you know doesn't have very much experience is when they ask for terms that any seasoned professional knows are out of market. Excessive I/O, out of market amortization schedules, out of market interest rates, etc. If you go to a lender with expectations that are WAY OFF they won't take you seriously so you'll have more difficulties getting financed.

There is a line of reasoning on some message boards that you can establish a business credit profile and not have to borrow money in your own name once you get established. I can tell you that most of the people that say that aren't speaking from experience. Any business that finances working capital, term loans for cap ex or real estate almost always signs a personal guarantee.

There is a business saying that goes like this:

We offer great service, great price and a great product, the catch is you can only pick two.

With money center banks or lenders who have upline correspondent banks/aggregators the product is the same. The product is the loan policy (i.e. 75% LTV max, DTI ratios, amortization terms, etc). The product is the same because they are selling to the same aggregator.

The price is the loan interest rate and fees.

The service is the responsiveness and the time span of the transaction from cradle to grave.

If the product is the same, then you have one choice left. Price or service. Anyone that thinks you can get both is delusional. My guess is that these providers are selling price not real service, because in the end most people pick price over service even if they won't say that going into a transaction.