You Need Capital....No Matter What People Say!!
I have been trying to obtain financing for a 6 unit commercial building for $140,000 I have been looking to purchase. I have been in contact with banks and mortgage lenders, and both have denied me and my partner for lack of capital and collateral. My partner even has equity in a second home that he rents out, and that still wasn't enough.
I guess I am a bit bitter this morning because all I hear from this site and everywhere is that you can get into property with No Money, No money , No money! But the bottom line is YOU NEED CAPITAL!!
The only good thing I guess I have going is that my credit is excellent (above 700), but as I said, this didn't get me the loan. Maybe it's the fact that this is my first purchase which turned creditors away? Maybe I should look at something cheaper and smaller to start out with?
I guess I need to re-think my investing strategy and go for something a little less. I am thinking I need to build up my capital reserves first BEFORE attempting to purchase commercial property of that price. I plan on doing that through cheaper, single, residentials , rehabs, foreclosures and even a flip here and there. Then I can start purchasing those long term investments that will build for the future.
As I said, I am somewhat frustrated today with REI, but I am not giving up!!! I will continue to pursue my dream. I heard a quote one time that went something like, "A successful person fails 99 times...but may succeed on the 100th time!"
I am open to any other suggestions out there or directions I can take in this biz!
Thank you all for letting me vent on here...I feel better 
Chris G.
Well, since we're venting, I'll say that this should have just been a post within the forum section. Really don't understand why or how it made it to the articles section.
Now that that is over with. You're mixing up your investing learning and doing. It's been said many, many times, but no money down doesn't mean "no money" needed. Someone is going to have to foot the bill, it just doesn't always have to come out of your pocket. Also, no money down is hardly ever talked about when dealing with commerical investing. I think that is where the main problem lies. Your educating yourself on residential buying techniques and trying to apply them to commerical investing. Simply doesn't work.
Working capital is a common thing with commerical lending. These lenders want to be sure that you have the funds to handle any problems should they come up, without relying on rents to fund the bill.
Another thing that may be hindering you is your choice of partners. The only reason to have a partner is because they are bringing something to the table that you currently do not have. You have the knowledge and the credit. You can find deals, so really the only thing that you need is funds, correct? If this is right and this partner is not supplying this, then it is not a good partnership, businesswise.
Roger
I agree with 95% of what Roger said. However, I disagree with him on one point. I believe that most of the creative methods discussed here are ways to buy real estate, not just SFR's. Sure there are some variations and different potential pitfalls, but you can use L.O., Sub. to, short sales, etc for commercial properties just like you can SFR's.
Who are you learning from?
How many times have you tried?
What are your obstacles (specifically).
You can buy commercial properties with "no money down" (ie, out of your own pocket). I know. I've done it. The toughest deal that you'll ever do is your first. The second toughest is your second. Get those two under your belt and you're on your way.
Not every deal lends itself to creative financing either...no matter how great a property (or even its price) looks, if your seller is not esp. motivated, and/or is determined to cash out and won't accept terms, well, maybe you're focussing too much on the property and not enough on the deal. In many cases, good terms can make a bad property shine and bad terms can splash a lot of mud on a great property. Keep looking, there are more fish in the lake. In many ways, it's a numbers game.
very well put.
Chris, did you try to do a blanket with the other property's equity collateralized? I've done these deals, and as long as the value is there, I've even been able to finance the closing fees; in one case, on a 60,000 sf retail furniture building, the buyer had another f/c commercial building, and we were able to offer him a blanket mortgage using the euity in both buildings. As a result, he had no money out of pocket other than 2 commercial appraisals, each totaling approximately $2,000 if I remember correctly. IF there is enough equity, it is possible. Remember, "Effort only fully releases its reward after a person refuses to quit."
You might can try a hard money lender...It will probably work if there is enough equity in both properties, 65% ltv and many will even allow all points to be taken out of the loan. Then a refinance a little later might be easier.
Also see if the seller would do a partial balloon note or 2nd position to allow more to work with on your first. Doesn't hurt to ask.
Good luck,
Terry
i dont believ in these informacials of no money down , even if you use you common sense how can you buy property no money down and you are not livung in it how will the lendr know that you are a serious person without some commitments . the bottom line is that you have to show the lender some committment s. so anything as no money down idont think that one exists
Commercial financing is tougher than residential but if the seller is motivated try talking them into financing a small portion in second position. This way you are borrowing at a lower ltv. Once you have owned the property for one year you can refinance using the appraised value and pay the seller back. You could also try pulling the equity out of your partners home to leverage your money or get the lender to cross collateralize. If you put your mind to it anything is possible!
I just want to thank everyone for their input and advice here on this article I posted. I will def. give it another try. It is still availaible, so maybe there is more motivation from the sellers side.
Thanks again TCI
Chris G
well i must agree with most people and what they have mentioned. but just a side note. a few months ago i found a 6 plex for 250k while they say most commercial need cashflow this is true. if the property wont show a profit they wont lend. i work as a loan officer. i could not get one my self. and this is why. if that loan you want was 300k plus the loan would not be a problem i have a few that would lend on it. the fact is theres no profit for a commercial lender in such a small amount. commercial is a whole other beast in the lending world "general" speaking you do not have to qualify personaly for a loan the property needs to prove that. because if you fail to make it the property needs to cover if you fall out. well the only way to skin the cat is in the private sector. well good luck i hope it helps if your in CA let me know i could help in the loan area. if it's not under 300k commercial
well peace
I have had pretty good luck working with investors who understand double closings or simultaneous closings and they work well just about anywhere in the country.
Exploring this alternative could pay off, I know we have helped many over the last ten years.
Dear Sharp Person.
Relax, you are doing the correct thing. I suggest you might explore the following method which has worked in the past.
You ask the existing owner to refinance to maximum and then you have him come back at time of sale with a Biggy Second or a Wrap around. You increase the sale price to absorb any shortages of cash. You then take the slightly inflated note into his bank and he borrows against it for any necessary true cash required. Do not let him sell the note that might be a hurt. But this teck hs worked out here in LaLa land. We bought a building on Sunset loaded with highly talented but non socialy acceptable record persons. You should have seen the bank mangers face when he went through the building prior to lending on the Purchase Money Trust Deed.
Shortly afterwards we blew him away again when we had one of these record types come into the bank and buy five maximum Certificates of Deposit.
I know it is slightly out of the box thinking. But the unconfined view is excellent. Try it. Mickey likes it. I like it.
Cheers Lucius
When I was a young chlld my grandfather got me a job in a Bank of America. While there I came upon a book labled Standard Operating Procedures. He suggested that I read it cover to cover. i DID SO. It was revolting could have replaced Nux Vomica in any medical cabinet. But as a view into bank corporate thinking super valuable. It made all the actions of the Bank understandable.
This publication held place number one in my list of restrictive literature. It remained in this place until superceeded by a publication put out by the Department of Defense. A Study of the Morale of the Soviet Fighter Pilots. It cost some $3,000,000 and comprised some 800 pages. I reviewed it.,My review. "The MOrale of the Soviet Pilot" Sometimes it is good and sometimes it is bad. The End.
Lucius