Commercial or Conventional Financing - Posted by The Daniel

Posted by Ed Garcia on April 06, 2007 at 11:34:25:

The Daniel,

Remember, financing is not carved in stone. The nice thing about dealing with small local banks is that they are portfolio lenders and can tailor the financing to the customers needs. I encourage building a relationship with a small local bank.

The value of an LLC is of course to protect your assets. However what you?ve got to be careful of Daniel, is that many investors start loading up their LLC?s with multiple properties and defeat the purpose of the LLC.

I?ve seen investors who would have the vast majority of their wealth tied up in an LLC and it was worth more then the investor. The answer is to have more then one LLC allowing you to put a few properties in each LLC. When doing larger commercial deals we usually have an LLC for each individual deal.

I agree with you when addressing SFR?s vs Commercial. When teaching my workshop, I define the two different investing philosophies. Real-estate investors are usually taught a technique, system, or method, but are not taught REI as a business. That?s why I not only teach Real-estate financing, but I also teach REI as a business.

The philosophy of REI in SFR?s is, ?a quick nickel is better then a slow dime?, creating immediate cash-flow as you have said you?re doing in another of your post.

Hold properties or portfolio properties should be commercial. The reason I encourage commercial properties for holding is because when purchasing a commercial property, you’re buying an income stream and this is a property that makes you money by design.

If you were to own 20 houses or a 20 unit apartment building, you?ll find that the apartment build is not only far less management intensive, but gives you a better bang for your buck as far as the size of the investment.

Ron Blackmore, is your dad? You?ve got a great dad.

I?m sure he told you that at one time he worked for me. I stole your dad from Beneficial Finance. He was managing the Riverside office and I was doing business with him and convinced him to come to work for me. He did a great job managing my upland office and then decided to go out on his own.

When a friend or someone would ask me to go to dinner, I always say, ?let me check with my bride?. I stole that phrase from your dad. I?d always get a kick out him saying that when I?d ask him something and he would have to check with his wife, he would say; let me check with my bride.

Believe it or not, this week I had to go to a funeral of a friend?s wife in Riverside and was thinking of your dad. I was thinking of calling him, assuming he has the same phone number, and seeing if he?d like to go out to lunch. You be sure to tell your dad that I said hello and that I hope things are going well for him and his family.

Ed Garcia

Commercial or Conventional Financing - Posted by The Daniel

Posted by The Daniel on March 27, 2007 at 14:13:43:

I’m interested in buying, rehabing, refinancing, and holding. So I’ve been chatting up a few local banks in my home town about a BLOC to purchase properties @ 70 cents on the dollar and refinance on the appraised value. They are open to business plan but all are pretty much feeding me the same terms for commercial financing:
9.25% fixed for 5 years
20 year amort
Due in 10
Since rates are still at historic lows, I’m very hesitant to enter into these programs.
If I go with a 30 year fixed @ 7% NOO, then I’m exposing myself as a sole proprietor, since they will not provide an LLC with these residential rates. But in order to cashflow, I’ll have to buy at residential rates unless I absolutely steal the properties at 50% FMV or lower. I’m just not able to find properties with these parameters in my market. What would the pros do in such a Catch 22? Thank you for your support.
740 FICO

Re: Commercial or Conventional Financing - Posted by LK

Posted by LK on March 28, 2007 at 21:48:05:

A very good question, that I have been asking since prime rates went over 8%. Those that were investing when rates were in double digits probably get a laugh at fretting over a 1-1.5% spread. I started out thinking that I was doing best by having 15 yr am loans with very little cash flow to pay off the property faster. But as Mr. Garcia said, banks don’t like a business that doesnt make money. It is a trade off with the 30yr am conventional loans. Good cash flow but low equity pay down, higher closing cost and the loan is in your personal name. You have to do what works best for you and your business, all things considered. Not just what works for you, but also for your financial backer. That was what I was missing.

Here are a couple of suggestions that may help…

  1. You may can deed the property back to your company name after the loan has closed and been established.

  2. Think about selling every third, fourth, or fifth property to pay down debt on the hold properties. This would get you from the .75 LTV to .5 LTV giving you good cash flow regardless of a 7% or 9% interest rate.

Re: Commercial or Conventional Financing - Posted by Ed Garcia

Posted by Ed Garcia on March 28, 2007 at 10:12:02:


The terms and conditions that the bank has given are reasonable for a blanket lien which is what I feel that they?re giving you.

In my opinion, I feel that you?re mixing your apples with your oranges. Financing is available to do different jobs at different costs.

I would obtain a WLOC, ?Working Line Of Credit?, which is short term (1 year) and is about 1 to 11/2% over prime. I would get 30 year fully amortized loans for the properties that I?m going to portfolio at much better rates, 61/2% which will give me better cash-flow on my portfolio.

With the terms and conditions that they?re giving you, you?ll be lucky to cash-flow and if you?re negative cash-flow, it?s just a matter of time before they shut you off.

Ed Garcia

Re: Commercial or Conventional Financing - Posted by The Daniel

Posted by The Daniel on April 06, 2007 at 24:43:40:

Thanks for the sound advice. I couldn’t agree more that must do right by my banker. If I can’t create a win-win and build a business that is profitable, why should he invest in my enterprise. I’m familiar with deeding the property back into one’s entity after funding, but of course that violates the due on sale, which ironically places me in the same position I would otherwise be in as a sole proprietor. Oh well, this is the game we play isn’t it? I will definitely consider your idea with regard to selling every third or fifth property to pay down my debt load that much quicker. I actually wholesale SFR’s for cash-flow in one entity and will hold my keepers in another. So I suppose that touches upon what you are saying. In any case, thanks for the 411.
Much appreciated,
The Daniel

Re: Commercial or Conventional Financing - Posted by The Daniel

Posted by The Daniel on April 06, 2007 at 24:30:06:

Perhaps I am mixing my basket of fruit, but I was just wondering how others attempt to address the cost of money and limiting liability issues in real estate. I do appreciate you helping me get my bearings straight though. I’m definitely interested in establishing a “WLOC” for my wholesale SFR business, but I’d rather hold commercial property for wealth building. By the way, I used to live down by you in Riverside. My father, Ron Blackmore, speaks very highly of you. I often teach him a thing or two from reading your posts on this site. Who says you can’t teach an old dog new tricks?
Thanks again,
The Daniel