Hard Money & Commercial & LTV
Fellas,
I'm interested in hard money & commercial loans. I don't quite understand the equity part.
Let's say that the lender has 65% LTV advertised. Does this mean that I can get the owner to carry a second for 35% and satisfy the lender requirement...or is this like a residential loan where the loan to value is based off of the sales price and not the appraised value?
What other things am I going to run into as far as non advertised costs associated with commercial and hard money loans...set up fees? Points? Cash on hand requirements?
What I'm really looking to do is put as little into the deal as possible and have the seller cary a note for the equity requirement.
Is this realistic, or am I just wishing?
Thanks for everyones time,
Wes
Wes,
1. It is possible for to do a 65%/35% deal. That does not mean that every lender will be comfortable. You also should expect to pay more for the money as the loan is more risky then if you had 35% cash in the deal.
2. It is great to want to do such a deal. I am assuming you already have considered the cash flow. 100% leverage normally means some pretty bad cash flow. I hope you have the cash handle to feed the beast if there is a vacancy. With commercial the vacancies can be a good bit longer then with residential.
A hybrid for what you are implying is to find a partner who puts up the cash element. I would still ask the seller to carry back but with some cash in the deal everyone will be happier (lower risk to the sell, maybe a better price on the deal, better cash flow, more likely you can get lower cost financing on the 1st).
What you would be giving up is some of the upside. A partial deal that cash flows and can be held long term is better then 100% of a deal that has marginal to negative cash flow.
The only upside on a commercial deal is the income stream so make sure the numbers are there. By income stream I mean either the monthly income or the value of the property as defined by the cash flow.
John
[addsig]
sumtersc,
Should be okay. When I talked to a hardmoney lendor that I work with about this, he said they would let the seller take a small 2nd. Honestly, I don't think they are that worried about it. They know how to foreclose at lightning speed and have a rolodex full of active investors with cash. If you don't complete, they will foreclose in a heartbeat and get their money back within weeks of the foreclosure.
In dealing with hardmoney, be very careful. Make sure you can get out before you get in. A clear exit strategy is a must. The harmoney lendors have to move quick with no mercy for several reasons:
1) If the rumour got out that they did not foreclose quickly with no remorse investors would start to use them to "lock down" deals they might be shopping. They would have to open another department to deal with all of the "games investors play"....
2) Their investors need to feel a sense of security or they will take their money elsewhere.
3) Buying and selling investment property is a business. They are loaning money to a business idea, not a homeowner needing a roof over his head to survive the winter.
JohnCl