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REAL ESTATE Looking for Mixed Use Commercial Hard Money Lending help

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Empires

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I am looking to purchase a mixed used property that I am looking to occupy the commercial property and also have a single family prefab home built behind the commercial property to rent out as their is a large lot behind the building.

I don't qualify for traditional funding anymore since I went full time with my business anymore even though I am making in a day what I made in a week at my job. (Thanks banks!)

I am getting shot down at every hard money lender too though because I want to be an owner occupant in the commercial building.

Does anybody have any recommendations for financing a deal like this?

The property is listed for $250,000 and that includes 2 parcels. The commercial building is on 1 and the empty lot is directly next to the commercial building.

I am looking to make an offer at $225,000 and finance around $400,000 to do some rehab to the commercial building and have a small prefab home built behind the commercial building. The exact costs are still TBD as I need to get the property under contract before I go deeper into due diligence, inspections, and contractors.

My monthly income since going full time has went from 7,000 month 1, to 13,000 month 2, and on track to do about 22-24,000 this month and this property would take that to $50,000 or more within a few months as it would help expand my business big time.

@SteveO @Envision Would anybody have some advice for this?
 
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Antifragile

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Have you considered other options:
1) Owner financing?
2) Leasing ready to go space?
3) Saving up, scaling your business? To get enough history of earnings for banks to lend to you?
4) Private lenders (they’ll charge a lot, but another avenue to go).
5) Syndication with friends/family?
 

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Like @Antifragile listed - Friends/Family. Or do you know of any other real estate investors in the area that you could approach? That's how I purchased my storage facility.
 

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I am looking to purchase a mixed used property that I am looking to occupy the commercial property and also have a single family prefab home built behind the commercial property to rent out as their is a large lot behind the building.

I don't qualify for traditional funding anymore since I went full time with my business anymore even though I am making in a day what I made in a week at my job. (Thanks banks!)

I am getting shot down at every hard money lender too though because I want to be an owner occupant in the commercial building.

Does anybody have any recommendations for financing a deal like this?

The property is listed for $250,000 and that includes 2 parcels. The commercial building is on 1 and the empty lot is directly next to the commercial building.

I am looking to make an offer at $225,000 and finance around $400,000 to do some rehab to the commercial building and have a small prefab home built behind the commercial building. The exact costs are still TBD as I need to get the property under contract before I go deeper into due diligence, inspections, and contractors.

My monthly income since going full time has went from 7,000 month 1, to 13,000 month 2, and on track to do about 22-24,000 this month and this property would take that to $50,000 or more within a few months as it would help expand my business big time.

@SteveO @Envision Would anybody have some advice for this?
1.) SBA might have some loans for mixed-use properties. I don't know about limits or rates, but it might help you to get at least part of the amount you need.

2.) 401(k) loan - it has to be paid back in 5 years (but it can be longer in some special cases, such as a primary residence purchase - maybe the single family prefab could be considered your primary residence, and you rent it to a "roommate"?). You might be able to roll an IRA into your 401(k) first to increase the balance available for a loan (since it is based on a percentage of what you have available). It probably looks better to lenders if you are willing to put up some of your own retirement for the deal. I'm not an accountant or lawyer, so do your own research on this.

3.) This is not really financing, but it can decrease your expenses, which will make the investment more attractive for lenders: ask the town/city for a TIF deal (tax-increment financing). For example, you pay 0% of the normal property tax the first year, 20% the second year, 40% the third year, until you are back up to 100%. The idea is that the town will get more revenue in the long run, due to the increased property value and tax base. Make the case that you are bringing affordable housing, jobs, and business tax revenue to the town. Tell them the commercial building will be owner-occupied, so you will not be an absentee landlord. Municipalities make these deals all the time for economic development, and not just for the likes of Amazon...

4.) Can you rent out part of the commercial building and get a business to sign a lease before borrowing/closing? Then you will have higher income to show, making it easier to get investors on board and make them less nervous.

Just some random ideas to look into if you are really stuck. Good luck!
 

Empires

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Have you considered other options:
1) Owner financing?
2) Leasing ready to go space?
3) Saving up, scaling your business? To get enough history of earnings for banks to lend to you?
4) Private lenders (they’ll charge a lot, but another avenue to go).
5) Syndication with friends/family?
1) Good idea. I'll have my realtor reach out to see if owner financing would be an option.

2) I originally was just looking to lease a property but rent for an auto repair shop in my area is around 5,000 per month for a 1500-2000 sq ft space and they get rented the moment they are posted. I don't think it makes sense for me to take on that much overhead. At least with the property I'd be building equity with the rehab and the single family home.

3) This is likely what will happen, but I'd really like to get this shop if I can. From the bankers I've talked to they want 2 years of business profitability before they will consider lending to me. That is a long wait.

4) The same issue I have been having with hard money lenders I have been seeing with private lenders. For some reason they don't want owner occupiers.

5) I don't really have any higher net worth friends/family that could help out unfortunately.
 

Empires

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Like @Antifragile listed - Friends/Family. Or do you know of any other real estate investors in the area that you could approach? That's how I purchased my storage facility.
I am not into the real estate scene so I don't really know any investors in the area. I do know a coworkers who did cash fix and flips on the side, theres a chance he would know somebody unless he is funding it himself.

I will reach out to him and see if that opens any doors.
 

SteveO

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Great input from others. You have tried your local banks? Have you looked into bridge loans with commercial lenders?

I have found that you can't give up with a couple calls. Keep calling and don't get discouraged. Talk to people with extreme confidence but don't talk too much. Answer their questions with authority.
 
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Antifragile

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1) Good idea. I'll have my realtor reach out to see if owner financing would be an option.

2) I originally was just looking to lease a property but rent for an auto repair shop in my area is around 5,000 per month for a 1500-2000 sq ft space and they get rented the moment they are posted. I don't think it makes sense for me to take on that much overhead. At least with the property I'd be building equity with the rehab and the single family home.

3) This is likely what will happen, but I'd really like to get this shop if I can. From the bankers I've talked to they want 2 years of business profitability before they will consider lending to me. That is a long wait.

4) The same issue I have been having with hard money lenders I have been seeing with private lenders. For some reason they don't want owner occupiers.

5) I don't really have any higher net worth friends/family that could help out unfortunately.
I had to finance a property in San Diego. It took me 37 rejections before I got a yes. I spoke to banks, brokers, anyone who’d listen.

Lender brokers can refer investors too. Keep knocking on doors, one will eventually open.

That said; there is a value in you focusing on your business versus spending all time to finance a property. Pick your battles?
 

Empires

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1.) SBA might have some loans for mixed-use properties. I don't know about limits or rates, but it might help you to get at least part of the amount you need.
SBA could be a good option. I'll look deeper into that to see if it could help
 

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When I bought my first rentals, I just went from bank to bank until someone said yes.

No one wants to lend to businesses without 2 years of business history, except I did finally find a small local bank who would.

Keep going until you run out of phone numbers to call and offices to walk into.
 

Empires

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That said; there is a value in you focusing on your business versus spending all time to finance a property. Pick your battles?
Definitely a valid point, my thing is that I don't want to grow my business too much in a way that lacks control.

I started a towing company and grew it to $13,000/month via Google ads and then it maxed out there. I signed on with an insurance company 2 weeks ago and they've been giving me enough work where I haven't even needed to advertise since.

That is great, and there are plenty of other insurance companies to sign with too. There is definitely no shortage of work.

But the insurance companies are control freaks and all they care about are costs. They will stop giving you calls the moment someone cheaper signs up. And I am already an expensive service provider on their list, they usually only call me when 15 other people turned it down.

Maybe it's just fear but I worry about growing too much and becoming reliant on them. To grow more I just need to get a 2nd truck, hire an employee and sign on with some more insurance companies. I can probably hit $50,000 a month with just 2 trucks. But there are countless stories of towing companies swimming in success just for an insurance company to drop them and for them to crash and burn.

My plan with the shop is to own my customer base. The towing will help grow the auto repair and the auto repair will help grow the towing. Towing on it's own doesn't have much repeat business in the roadside assistance sector of it, minus the few unlucky souls who break down a few times in a short span of time which does happen.

Am i limiting myself here or does it make sense to not grow too much if it becomes out of my control?
 
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BizyDad

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Find someone else to buy the property. Structure the deal so you are their tenant. As part of the deal, work in an option to buy after 2 years. Or just make it a lease to own type thing.

Maybe you can work this out as part of the deal with the current owner.

Just don't mention to anyone you want to build a house on the other lot. Tell them you need the space for future expansion.

Then once you own it, worry about the build out.

The funny thing is this... You are afraid to grow too fast and see all the ways things can go wrong with your business. But when the bank doesn't want to finance you as owner occupied, you don't understand why.

Well, you are a one truck operation. If your truck breaks down, you suddenly struggle to pay anyone back. (If this was for commercial investment, then at least you would still have your income if the renter couldn't pay the rent).

And this financing you puts all the risk on them, the lender, especially considering you are seeking a loan greater than the value of the property.

I wish you the best of luck, but I don't see how anyone gives you a commercial loan to purchase a commerical property with the stipulation that you want build a residence on it. As an entrepreneur, I get it, but as a former banker, that's just crazy talk.

Just one possible problem as I see it is you'll need to separate the lots. If a kid breaks his leg playing in a ditch by the house, do you really want his parents coming after your business?

But the lot you want to build on will be collateralized by the commercial loan. So under your proposed deal, how can you separate the lots in the first place?

Just some food for thought. Hope that helps.
 

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1) Good idea. I'll have my realtor reach out to see if owner financing would be an option.

2) I originally was just looking to lease a property but rent for an auto repair shop in my area is around 5,000 per month for a 1500-2000 sq ft space and they get rented the moment they are posted. I don't think it makes sense for me to take on that much overhead. At least with the property I'd be building equity with the rehab and the single family home.

3) This is likely what will happen, but I'd really like to get this shop if I can. From the bankers I've talked to they want 2 years of business profitability before they will consider lending to me. That is a long wait.

4) The same issue I have been having with hard money lenders I have been seeing with private lenders. For some reason they don't want owner occupiers.

5) I don't really have any higher net worth friends/family that could help out unfortunately.
In my experience, hard money and private lenders are two names for the same part of the industry. I've been called both. It's known as hard money (based on the higher interest rates) loaned by a private lender.

You are trying to finance your purchase and improvements rolled into one loan. Your LTV (loan to value ratio) would exceed my normal limits.
 

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You run a successful towing business and have spent years developing skills around the industry.

While there are limitations, which you have mentioned, you may want to look at it from a different angle.

Generating leads on Google is a skill. Likely one that others would pay for, either as a service, or to learn themselves. Why not start doing that?

I'm sure there are others that would also pay to learn to get to 50k, even if its insurance only.

You may be falling into the classic entrepreneurial trap of "running away from your success".

An auto repair shop is a completely different business, even though there are complementary features.

Your towing business currently has a challenge with control.

So expand your lead sources. Get more insurance companies, do more google ads, look into other online sources (facebook, radio, YouTube, etc)
 

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So are those current numbers profit or gross income? You mentioned $50,000 a month, I imagine that that is gross income. If so what is the net profit from that.

You have a towing business now and basically you want to all start your own auto shop. I think to most banks this is basically starting a new business. I would probably look into an SBA loan for a start up.

It also feels like two separate ventures. One is commercial and the other is residential. I’m assuming that you’ve looked at zoning for the other lot and a single-family home is OK on it?

I understand your want to grow and diversify your income stream and leads. But, do you really need a location to get a second tow truck? Why can’t you run 2 tow trucks without a location? If you can do $50,000 a month and the margins are very good, I would milk this until the insurance company stops giving you leads. Save as much money as possible.
 

Empires

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You run a successful towing business and have spent years developing skills around the industry.

While there are limitations, which you have mentioned, you may want to look at it from a different angle.

Generating leads on Google is a skill. Likely one that others would pay for, either as a service, or to learn themselves. Why not start doing that?

I'm sure there are others that would also pay to learn to get to 50k, even if its insurance only.

You may be falling into the classic entrepreneurial trap of "running away from your success".

An auto repair shop is a completely different business, even though there are complementary features.

Your towing business currently has a challenge with control.

So expand your lead sources. Get more insurance companies, do more google ads, look into other online sources (facebook, radio, YouTube, etc)
My experience is actually in auto repair. I was a mechanic for 7 years prior to starting this towing company. I didn't have any experience towing before starting this business, I just bought the equipment and learned as I went. Practiced on my parents cars.

I definitely don't want to get into teaching others to start a towing business. I'd much rather just continue to grow the business.

I see everyones point though. It is like starting a 2nd business and could be taking a turn when I could keep going straight and grow the towing further. I can always expand the business into auto repair later when the towing reaches more of it's peak.

And diversifying the leads would definitely help with the insurance companies having too much control.
 
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Empires

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So are those current numbers profit or gross income? You mentioned $50,000 a month, I imagine that that is gross income. If so what is the net profit from that.

You have a towing business now and basically you want to all start your own auto shop. I think to most banks this is basically starting a new business. I would probably look into an SBA loan for a start up.

It also feels like two separate ventures. One is commercial and the other is residential. I’m assuming that you’ve looked at zoning for the other lot and a single-family home is OK on it?

I understand your want to grow and diversify your income stream and leads. But, do you really need a location to get a second tow truck? Why can’t you run 2 tow trucks without a location? If you can do $50,000 a month and the margins are very good, I would milk this until the insurance company stops giving you leads. Save as much money as possible.
Those numbers are gross income. My expenses on the 22k I will do this month will be about 5500, not counting paying myself. Getting a 2nd truck will add about $7800/month in expenses including an employee's pay but should bring an additional 25-30k in revenue once I add some new insurance contracts.

I don't need a location to run my trucks at all, I just worry about giving the insurance companies too much control over my business if they generate the vast majority of my income.
 

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My experience is actually in auto repair. I was a mechanic for 7 years prior to starting this towing company. I didn't have any experience towing before starting this business, I just bought the equipment and learned as I went. Practiced on my parents cars.

I definitely don't want to get into teaching others to start a towing business. I'd much rather just continue to grow the business.

I see everyones point though. It is like starting a 2nd business and could be taking a turn when I could keep going straight and grow the towing further. I can always expand the business into auto repair later when the towing reaches more of it's peak.

And diversifying the leads would definitely help with the insurance companies having too much control.
The two businesses go together. I almost started a used car selling business a couple of years ago with a friend who had an auto repair business. Things fell apart just before the Covid thing started -- which ended up being good timing for its demise. It's the same kind of business marriage.
Another example: my residential rentals with my self-service Laundromat...

The other people who have posted are correct -- your towing business is not easily scalable. BUT, it is a candidate to become a productocracy in your area. And you can add on the auto repair business. That business has changed a lot in recent years since cars have been computerized. So, there isn't as much work that an independent shop can do. Between the two businesses though, you should have more than enough work to make you financially independent.
 

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Those numbers are gross income. My expenses on the 22k I will do this month will be about 5500, not counting paying myself. Getting a 2nd truck will add about $7800/month in expenses including an employee's pay but should bring an additional 25-30k in revenue once I add some new insurance contracts.

I don't need a location to run my trucks at all, I guess I just worry about giving the insurance companies too much control over my business if they generate the vast majority of my income.

You worry about the insurance company having too much control, but aren't worried about the monthly payment for a $400k business loan.

How does this translate to "this property would take that to $50,000 or more within a few months as it would help expand my business big time."

What you are saying is that you don't NEED the property to get to $50k a month in revenue by getting a second truck. So why add additional fixed expenses?

Then you are saying that you are worried about getting the second truck and keeping the revenue flowing from a single source of leads.

If this is truly your worry, it doesn’t make sense to buy a property and put yourself into a long-term debt because you feel that the cash flow might be unstable.

It really seems like just purchasing a second truck and hiring another driver is the best way to minimize your risk and increase your income.

Then when you have two trucks going in a reasonable amount of income, you can then venture out and start the auto shop or get a rental home.
 

WJK

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You worry about the insurance company having too much control, but aren't worried about the monthly payment for a $400k business loan.

How does this translate to "this property would take that to $50,000 or more within a few months as it would help expand my business big time."

What you are saying is that you don't NEED the property to get to $50k a month in revenue by getting a second truck. So why add additional fixed expenses?

Then you are saying that you are worried about getting the second truck and keeping the revenue flowing from a single source of leads.

If this is truly your worry, it doesn’t make sense to buy a property and put yourself into a long-term debt because you feel that the cash flow might be unstable.

It really seems like just purchasing a second truck and hiring another driver is the best way to minimize your risk and increase your income.

Then when you have two trucks going in a reasonable amount of income, you can then venture out and start the auto shop or get a rental home.
I agree. I'm afraid he will be over-extended.

To guy looking for the money:
The thing I don't understand is how much money you are putting down. You don't seem to have any dogs in this fight (money into this deal). You stated that you want to borrow $400,000 to buy a property that you plan to pay $225,000 to purchase???? Yes, I heard you talking about adding a prefabbed house and doing some rehab on the commercial building. Those improvements are not usually financed. In my experience, you must put about 30% ($67,500 + costs) to 40% ($90,000 + costs) down on the commercial building and then go out of pocket for the rehab. Adding a living unit is also an anomaly in a lending situation. If the condition of the commercial building is too rough, it may not be financeable at all. That is why I said previously that your plan exceeds my LTV requirements.
 

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