Purchasing my first rental property

laptop, office, hand-3196481.jpg

Purchasing 1st Rental as a corp?
Posted by: Wes Wagner Apr 2 2004, 07:07 PM
I am interested in purchasing my first rental property as a corp. I have been reading it it appears that there is some difficulty in obtaining financing in the corps name and purchasing the property in the corps name. I have perfectly fine credit for signing a personal guarantee until the corp’s books are up and running well enough to stand on their own, but who will take a 20-25% down payment and finance the apartments/homes in the corps name with the corp holding title ?

-Wes Wagner
PS: I will accept private commercial email solicitations if you can lend in the State of Oregon – I have good credit and capital to work with.
Posted by: loanuniverse Apr 2 2004, 08:50 PM

Financing under a corporate name is not a problem for commercial lenders. If you have been talking to a residential lender, there is a possibility that you have been steered into one direction that might not be entirely accurate. {This does not mean that it was done purposefully, it might be because the lender is comfortable with that type of lending}.

Most commercial lenders will finance with 20% down and a few more will finance with 25% down. However, the loan has to make sense from the point of view of cash flow. Meaning that the NOI or Net Operating Income must be enough to cover the proposed debt service. It is all about cash flow in lending.

Your personal guarantee will be required for the borrowings under your company for a very long time. Frankly, the only way that the guarantee will be waived is if you have the bargaining clout to get it waived from the lender. In plain English: ”The lender wants you more than you want them or you have good conections”

Regarding your request for solicitations, I am not in the business of lending myself and limit myself to giving advice. I am sure someone will eventually contact you {I get about six lenders coming around from time to time looking for leads. Nevertheless, I suggest that you get proactive and contact some lenders yourself {I am partial to commercial banks having worked for three already}

Good luck and hope this helps,
Posted by: Wes Wagner Apr 2 2004, 09:02 PM
I very much appreciate the quick response, I will seek out commercial lenders. As far as the positive projected cash flow goes, if I can’t rent it out for a reasonable debt service after putting 20-25% down, I figure I am looking at the wrong property. I saw your spreadsheet and made a modified version of it that I can use to quickly check out the coverage on single units with only a single loan. Thanks for running this site, it has been quite informative.

-Wes Wagner

Posted by: loanuniverse Apr 2 2004, 09:11 PM
I am glad the site was helpful.
Posted by: Wes Wagner Apr 3 2004, 03:11 PM

So should I just contact some of the local banks that do commercial and small business loans and bring my business plan and finances in? Are regional banks the typical issuers of debt for real estate investment loans? Most of what I see out there is for large properties and development ($5million+) Who handles the smaller stuff?
-Wes Wagner
Posted by: loanuniverse Apr 3 2004, 06:50 PM
With income producing properties there is no business plan. It really is not necessary to do one like it is done for operating companies. It is all about rental income, operating expenses and the remaining cash flow being enough to cover the proposed debt service.

Most small to medium banks do this type of business. I would contact a couple of local ones to start and make an appointment to sit with a couple of lenders.
Posted by: Adrian Apr 4 2004, 02:03 PM
I ran into a problem regarding rental income. Most homeowners know that when it comes to tax, there is something people called positive loss. Basically, even when the property is making money, positive cash flow. On IRS tax form, with all the deduction and whatnot, you actually show a loss. How does that effect loan process? There is no other way to show income besides the tax income form, therefore, wouldn’t a homeowner have to report everything in order to do investment property?
Posted by: loanuniverse Apr 4 2004, 03:03 PM

If you are going to a commercial lender for a commercial real estate loan, the effect will be minimal.

First, the loan will not be to you, but to a real estate holding company.

When calculating your personal cash flow, if they are doing it right they would ad the depreciation expense, which is pretty much the reason why you would show a loss on the taxes when in reality having positive cash flow on the rental property.
Author: Commercial Loan Underwriter