Posted by JP on September 24, 2003 at 09:02:08:
Thanks for the reply. My only concern is that I can’t personally sign on a loan for the LLC/IRA. I can sign as a manager of the LLC, but I can’t personally guarantee any loans involving my IRA.
Non-recourse is the standard? - Posted by JP
Posted by JP on September 23, 2003 at 20:37:57:
I’m working on a gameplan and my big “goal” is to eventually buy a medium sized apartment building within the next few years. If all goes as planned I should have about 400k in cash to put down, so assuming 20% down I should be able to get a loan for around 1.6 million and thus buy a 2 million dollar building. Only problem is that I want to do this via an LLC that is mostly owned via my self-directed IRA, and so I can’t sign on the loan or personally guarantee anything. But it is my understanding that with this type of a commercial loan over 1 million that they are usually non-recourse loans anyway, right? They basically just look at the property and crunch the numbers, and if it will support the payment they give you the loan?
Re: Non-recourse is the standard? - Posted by Don Dion
Posted by Don Dion on September 24, 2003 at 10:38:41:
I am a commercial mortgage broker and agree with most of what Robert posted. But there are several national lenders in my database that go as low as $100,000 on commercial loans of this type. While the rates from these lender’s might be slightly higher then the quotes they would give on a $2 mil plus loan they are still much lower then local banks. A recent example: Small industrial building worth $1.5 mil loan $825,000. Local bank quoted 8.125% 5yr arm 15yr am. I received a quote on this one for 5.99% 5yr Fixed 25yr am.
Re: Non-recourse is the standard? - Posted by Robert Turner
Posted by Robert Turner on September 24, 2003 at 08:56:30:
JP
Most non-recourse lenders (primarily Conduit Lenders) have a cut-off of $2.5 million to $3.0 million, although several lenders have ?Small Loan Programs? that go down to $1.0 million without recourse. However, ?Non-Recourse? does not necessarily mean that you don?t have liability. Most non-recourse loans have ?Carve-outs? for environmental and/or fraud. These carve-outs are almost always signed by the sponsor or financial-partner. Although as I understand it for tax purposes, the loan is still considered non-recourse.
Loans under $2.0 million usually are underwritten with more conservative DSCR and have, on average, higher fees and rates as well. The smaller size implies higher volatility at the operating level and a Lender does just as much work on a $2.0 million deal as a $10.0 million deal, so they compensate by charging more for the smaller deal.
Good luck with your purchase.
Robert