Personal RE Investing Questions - How to compete when using LLC & Commercial loans?
I'm looking to make an offer on a ~$500k triplex using an LLC and commercial loan, but the rates I am getting quoted (~4.5%) are over 50 bps higher than a conventional investor loan (~3.9%), and over 100 bps higher than an owner occupied conventional loan (~3.3%). Assuming all buyers are underwriting to similar cash-on-cash returns, how am I supposed to make a competitive offer if going against conventional loan buyers, especially owner-occupants? Are there any tips or particular property types or $ values I should be targeting where there will be less conventional loan buyers or the spreads aren't as wide? Or do I just need to accept that if a property is attracting lots of conventional loan buyers I simply won't be able to compete and should move on?
One option is for your realtor/broker to do a better job convincing the selling broker that you'll perform as a buyer, on schedule. This may involve paying commissions or making other concessions. The other option is you increase your offer, because you're not all underwriting to similar coc returns.
This situation is a bit unique in that you'll have a few different types of interested buyers, being a 1-4 unit property. There are a lot of high earners looking to get into RE or mom-and-pop types in this space, and the truth is you're not all underwriting to the same metric, if at all.
As a seller, I don't care (at all) that your financing is more expensive than an owner occupant. I care about my sale price and I want to have confidence that my time isn't being wasted. A quick escrow or other concessions can go further than you might expect as well
been there done that, there is no easy answer to this. the financing out there for stuff like this sucks ass. either go FHA or do a bigger deal. those are my only suggestions.
Agreed it's tough, at least in high COL markets... I'm in CA and it's not easy, especially with how competitive it's been the last few years. I'm interested to see how that may change
As a side note the financing challenge is even more "real" in other product types. The bank debt available for sub-$1mn commercial real estate whether it's retail or whatever is generally unappealing/unappetizing to the borrower. Talk to a smalltime debt broker.
When you say do a bigger deal, do you mean target the a deal size that meets the fannie/freddie minimum of $750k-$1mm?
there are also a couple one-off lifecos here and there, if you can dig them up, who will go this low. hell you could even get CMBS debt at $1mn, not sure if that stuff is fucked right now though
Are you going to PG the loan? Smaller loans like this are going to be off someone's balance sheet and depend alot on the bank's cost of funds which will hit a floor long before the 10 year goes negative...
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