leveraging personal property to buy commercial
|Posted by: Melissa Jul 21 2004, 08:40 PM
I have 7 rental properties that have appreciated in value. Included my own primary residence, I have about $500k in equity. I am an Estimator for a commercial general contractor who builds a lot of retail. Im working on a project where the developer is building a small retail strip center, all said and done he will cash flow about $500k per year. I want to develop a project like this on my own and wanted to know if I could leverage, on paper, my personal property equity to use as a downpayment on purchasing a commercial property or even to buy land and build my own shopping center. I have heard you need about 20% down, which would be about $600k on a $3mil project. Will banks take an equity interest on paper in my personal property as down payment?
Not knowing where to start, do I talk to a bank, then find a commercial real estate broker to find me the land/property and pull together the details? What advice can you lend?
|Posted by: loanuniverse Jul 21 2004, 09:41 PM
Concentrating solely on your questions.
” Will banks take an equity interest on paper in my personal property as down payment? “ Nope, banks will not accept that. The money has to be there. They are not going to take second position mortgages as your equity contribution.
” Not knowing where to start, do I talk to a bank? “ Hmmm not the best place to start since banks do not like to talk hypothetical. You need a plan and then you lineup the financing.
The process of financing a commercial real estate development is usually done in stages. The first one would be in the form of a land acquisition loan. It then becomes a development/construction loan. Twenty percent down payment is a little too optimistic, you will not get a bank to lend you 80% on land. The whole financing is a bit more complicated, and lenders avoid developers without experience.
|Posted by: The Fox Jul 22 2004, 09:10 AM
|The Catch-22 in business: you need the experience to get the “job”, and you need the job to get the experience…
|Posted by: Melissa Jul 23 2004, 10:19 AM
|Dear Loan Universe,
If the baks won’t accept an equity interest as downpayment, is it true that there are some banks that will give me 100% home equity loan? Im thinking I can get the cash out this way and then use it for the down payment towards a commercial property.
If I want to go commercial, where do I start? Should I be looking for a commercial real estate broker?
|Posted by: loanuniverse Jul 23 2004, 01:02 PM
|… is it true that there are some banks that will give me 100% home equity loan?
Yes, that is true as long as you qualify using your personal income as a source of repayment. It is also true that you could turn around and use this money as your down payment for a commercial property.
… If I want to go commercial, where do I start? Should I be looking for a commercial real estate broker?
I personally think that people should avoid construction projects unless they are general contractors or have extensive experience in construction. Too many things can go wrong. I would usually point people in the direction of income producing property, but you seem to have experience with that already since you mention “7 rental properties”.
If you are still thinking of doing a construction/development, In your position I would:
1- Start with a smaller project.
2- Go with something less risky such as multi-family instead of strip shopping center.
Going with a broker would be a good place to start as it does not cost anything to just look.