Loans and Net Worth
I understand that the typical loan on a CRE deal can run anywhere from 60% LTV - 75% LTV. The issue I see with this for a small time inexperienced "wanna be" investor like myself is even if I have the cash, I don't have the net worth to qualify for the loan. Is that accurate?
Yup. A low net worth can be overcome if your personal cash flow is strong and you may need to settle for a lower LTV than the range you indicated.
You can also bring in other investors that might have the higher net worth that can lower the risk for the lender, assuming they have enough confidence in what you're doing to guaranty the loan.
Definitely true. Some of those HNW folks co-invest and will also charge a guarantor fee to the other investors who needed the HNW guaranty to secure the debt financing.
Meh, there are regional and community banks lending to borrowers on CRE deals with poor reserves.
Exactly. It's all fact-dependent. Credit committees can agree to exceptions to bank credit guidelines on a case-by-case basis. Things you can do to help your cause is agree to open a nice, fat bank account at the bank, lower LTC to 50-55%, pick deals in quality neighborhoods, and agree to a personal guaranty (even one that has dull teeth due to low net worth is preferred by the bank for "moral" reasons--it knows the borrower has at least something to fear). If you have a strong credit score and/or a good resume, that is also to your benefit. It's also to your benefit if the debt yield is high (in the double digits) and if the underlying collateral value isn't entirely predicated upon theoretical future numbers, i.e. deals that are closer to stabilization or have some in-place, recurring income are more desirable from a credit standpoint.
In sum, if you want to do a maximum leverage new development deal, then you'd better have great net worth, excellent experience, and a project in a fantastic location. Otherwise, you need to help the bank help you.
This also depends on recourse vs. non-recourse loans
There are a ton of ways around this. If you are buying an asset bellow market value you could make a case for credit committees. Additional;ly if you are doing repositioning you could go in with a bridge fund and refinance out conventional. I have closed a few deal where the bridge fund didnt care about the borrowers experience for the deal.
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