All Forum Posts by: Darryl Dahlen

Some banks are more lenient that others about the amount of experience they want you to have. One way to offset a lack of experience is to mandate that you use a professional property management company, which is in reality a good idea anyway until you have a measure of experience under your belt.

The larger the property the more the lender will want to see that you have some prior multifamily experience, even with a professional management company in play.

Bingo, but don't let the fact that the property's incomes is what services the debt overshadow the fact that any commercial lender still looks at a borrower's credit, liquidity, income, and net worth. They DO play a role in commercial lending.

What lender you use, and is BEST suited to the loan, is largely dictated by the loan amount. While a myriad of other factors come into play, the loan amount is a good litmus test as to which lenders might be better suited.

Generally speaking, loans under 1MM are better suited to local banks and credit unions. That's where they lend all day long and are very comfortable. In reality, large(r) banks, CMBS, agency programs, and life companies, really don't have an appetite for small(er) loans.

That being said, most banks have a small balance commercial program (Wells has a great one), but not all banks are the same or are as competitive. A small to mid-sized bank is likely to be a better option than a national bank simply because a bank who only has branches in the market you are buying probably only lends in that market.

Most of the lenders that Jeff posted are Tier 1 lenders and won't have much of an appetite for your project unless the loan amount is large. This is coming from a guy who financed over 22MM last year in multifamily loans and uses some of those very lenders.

I'd like to see the numbers on an 8-unit that is going for $2MM. Is there enough fat on the deal to make it worthwhile? I financed over 20MM in multifamily deals last year. ALL in Dallas and Houston, and the $2MM sized loans I did were for 76-125 worth of Class C units. Why are you sold on this property when that kind of money can buy so much more?

As to the financing, since the property is likely a Class A/B property, or better be for that kind of money per unit, lenders tend to be pretty aggressive with their terms, but are you the kind of guarantor a lender is looking for on a $1.5MM+ loan? You can offset experience, to some degree, by having a professional management company involved (which a lender is likely to impose), but this is an 8-unit so it's kind of a give and take to have a PM company involved and pay that fee every month. Will you have strong post closing reserves? Lenders like to see anywhere from 6 months of PI and up post closing.

You could ask for a seller financing component, but the senior debt lender will factor the numbers for both loans under their debt service requirement. Since you're new, I wouldn't expect a lender to allow for a high(er) CLTV seller second. They're going to want you to have as much skin in the game as possible.

I can't see a high rate mezz component working as that would take eat into the profits quickly.

Not trying to rain on your parade. Just trying to give you some insight from someone who does multifamily financing for a living.

Yes, it is possible to get financing solely based on the income of the property, and it is possible to obtain conventional financing as a Canadian.

The terms of what you can obtain depend on large part to the market, size of the loan, caliber of the property, and the historical financials. The truth is, it's easier for a foreigner to buy a larger property (1MM+) than a smaller one since the lenders (outside of the few local banks who can help) who will lend to foreigners aren't typically suited for smaller loans. Too much risk.

That being said, I see a LOT of foreigners who want to get into the value add game and buy an underperforming property and are seeking financing with good terms. This is not easy as most of the borrowers in this pool lack a track record of past performance, don't know the subject market, and the property has issues. None of which are attractive to any conventional lender.

Hope this helps.

As Chris stated, it may be a good idea to look at what the market rate for rent is and use that in your calculations. You may want to also look at what type of lease the doctor has (N,NN, or NNN), what provisions there are for extending the lease, and any out clause language.

It would seem that since he's 62 and signed a 3 year lease that he's looking at retiring at 65 so you could be faced with some TI expenses in a few years.

Agreed. The type of financing you can obtain is in large part dictated by the property, and the associated details, that you are buying as well as to some degree by your goals. You can start obtaining financing with a lot of different lenders providing the financing you are seeking is in line with what they can provide.

Based on a scan of that list, I only see one lender who would be interested in a small 6-unit loan. Almost all those are CMBS/Agency/Life companies with large(r) loan requirements.

That being said, WF has a small balance program that could be of use to you. The offer 25 year amortizations, but their cap is 75% LTV. If you can find 80% LTV then you're doing well, but you really want to make sure that lender is closing loans at that LTV. Very few are.

Good advice from @David Monroe

Forming an LLC isn't going to be a big deal in your case since it will be a new SPE that has no prior income and assets. As such, the lender is going to scrutinize your income and assets to ensure you are a strong guarantor.

Since you are new, my advice would be to look at properties that you can obtain solid financing on. Too often, I see newcomers try and buy too much property that have too many problems, have too little money, and need too leverage to make the loan work.

Make sure the property's financials are strong, the market and property condition aren't weak, and that you can give the bank comfort with your liquidity and assets. Life will be much easier for you.

It's a seller's market for sure. I'm mostly active in TX and GA. Compared to 1-3 years ago where I was seeing people buying Class C properties in the meaty part of the curve for what those units sold for I'm now seeing people have to pay top dollar to put a property under contract. 
A lot of the low hanging fruit has been snapped up creating a lot of competition for the inventory that's left. You really need to know what you're doing in order to make sure there's enough "meat on the bone" to avoid over committing. Buying properties at a premium doesn't leave much room for error.