Commercial loan or not |
| Posted by: Adrian Apr 1 2004, 09:08 PM |
| I’m looking at an 10-unit apartment building in my old college area (4-hours from where I am now). The asking price is $139,000. Rent income is $41,760 a year, all occupied and good tenants. Tax, insurance, and other expense is total $17,000 a year (including a property manager). I can put down $30,000 on the house, and finance the rest of the mortgage. All the math I have done, it looks great on paper. My question, how do I even begin to look for a commercial loan on it? Also, my biggest concern is how this will effect my ability to buy my own house, say 2 to 3 years down the road? One of the loan officer told me that I’ll have a tough time to getting a loan if I want to purchase my own house, because I still carry the loan from the apartment building. Is this true? I’m getting married soon, and I want to live in a house of my own with my wife. I would never do anything to jeopadize that. Any advice? |
| Posted by: loanuniverse Apr 1 2004, 09:51 PM |
| Have you consider buying the property under another entity? A real estate holding company created for the purpose of buying the property. The loan will not show up in your credit report. “The asking price is $139,000. Rent income is $41,760 a year, all occupied and good tenants.” This seems like a very low price. $13,900 per unit??? |
| Posted by: Adrian Apr 1 2004, 10:23 PM |
WOW, thanks for the quick reply!!!!  Real estate holding company? Hmmm…  I should look into it, what type of corporation is it, LLC, INC? Any website that can help me with this?As to your second point, that’s exactly my point, I can’t pinpoint why it’s so cheap. From all the detail I have, the cap rate is easy at 20%. From the articles on this site and others, my understanding is that cap rate like this is really really good for the buyer. Any advice beside proceed with this besides caution and common sense? |
| Posted by: loanuniverse Apr 2 2004, 09:02 AM |
| Adrian: ”Real estate holding company? Hmmm… I should look into it, what type of corporation is it, LLC, INC? Any website that can help me with this?” Well essentially you want an entity that will shield you from liability and at the same time allows you to pass through the earnings to you. Most real estate holding companies owned by one or a few individuals are usually either corporations that have elected to be treated as subchapter S corporations for tax purposes or limited liability companies. Taking into consideration that the choice will be determined by the state that you are in, you should check into your particular state’s secretary of state. For now this is a good place to start: https://www.sba.gov/business-guide/launch-your-business/choose-business-structure ”As to your second point, that’s exactly my point, I can’t pinpoint why it’s so cheap. From all the detail I have, the cap rate is easy at 20%. From the articles on this site and others, my understanding is that cap rate like this is really really good for the buyer. Any advice beside proceed with this besides caution and common sense?” The only way I could really comment would be to know what the market is in your area. I really do not know, maybe it truly is a bargain, but I doubt it. While real estate is not as liquid as other types of investment, it is a fairly easy to figure out how much a property is worth. I would have to guess that there is something about it that you don’t know. Off the top of my head, I would do a few things to make sure that there is nothing out of the ordinary, such as: – Checking to see if the building is rented. – Checking to see if the tenants are really paying rent. – Taking a look at similar sales in the area. – Are the rents on par with what the market is charging? – There is a possibility that the property might have an environmental concern attached. {unfortunately, only a professional can check this for you by doing an environmental phase I audit } – I would feel more comfortable with a commercial appraiser. Even if the lender does not request it and is happy with a residential one. The commercial would go into more detail. – What kind of title are you getting? This does not mean, I covered every possible area of concern. In fact, finding the answer to some of these questions might very well bring more questions. Hopefully, this sends you in the proper direction. Good luck |
| Posted by: Adrian Apr 2 2004, 11:39 AM |
| Thank you very much for your advice! I’m so glad I found this board. As far as corporation goes, I think Subchapter S is the way to go for me, since I don’t intend to go public or anything like that. As far as that property, I have talked to the tenants and check their leases, so the tenants part is good to go. The market value of the property is last valued at $100,000. The town as I mentioned is pretty much a college town, so rent is relatively cheap. However, I’ll follow your advice by having a commercial appraiser and an experienced lawyer to look into it more for me. I rather spend the money up front to get a good deal than saving money at the beginning and get a bad deal couple of years down the road. |
| Posted by: loanuniverse Apr 2 2004, 11:53 AM |
| I am glad the site was helpful. |
