Actually this is not a new program, but over the last 3 years many similar programs have been discontinued. Today private investors, hedge funds and bridge lenders have begun to offer programs similar to those that were available before the recent financial crisis. One such program available today is the Blanket Mortgage for Commercial or Residential Investor properties. The unique features to this financing option is that it is based on the value and cash flow of the property, not on the credit of the investor.

Commercial Mortgage Loan Size

Most lenders have minimum financing criteria. Generally speaking higher minimum loans are attached to the best rates and terms. This is sad because it locks out a lot of small investors and people buying investments in markets where the average loan size are smaller. It is not uncommon for  the note to be at least two million dollars. But there is a market that specializes in small cap financing (smaller loan amounts). These small cap programs have much higher rates to go with the lower loan sizes. These new (retread) blanket commercial programs offer lower rates and more flexible terms. Though still higher than conventional rates, they are much lower than small cap and hard money programs. For the Blanket Mortgage, the minimum funded amount is two hundred and fifty thousand dollars ($250,000) with no maximum loan size.

Residential Investor Loans

Residential Investor financing is the hardest hit in the banking meltdown. It is exciting news that private lenders are back in the market to fund investor properties based primarily on the value and cash flow of the subject property. For residential property owners with multiple properties they will not be hampered by the conventional guidelines that only allow for four residential loans, and the credit criteria is lowered while the emphasis is on the income and value of the collateral.

Blanket Mortgage

Whether single family, two to four units, multi-family, mixed use, single use, or industrial properties the blanket program will allow you to put like properties in the same area into one loan. This has many benefits to the owner. The benefits include:

• Larger Financing Sizes: By increase the loan size by adding multiple properties the owner can qualify where they could not and may even get lower rates.
• Mortgage Qualifying: Smaller balances often do not qualify for financing.
• Lower Credit Score Requirements: Conventional and bank programs require higher credit scores and tougher credit criteria.
• Fewer Total Loans: a blanket mortgage will cover two or more properties allowing for lower total cost and fewer note payments to monitor.
• Make Conventional Programs Available: Once the financing is consolidated under one loan this may open opportunities for conventional residential financing.
• Reduced Total Fees: Fewer loans equal fewer fees.
• Reduced Rates: The rates are much lower than hard money and bridge loans.
• Flexible Terms: The program offers short and long term options as well as fixed and adjustable plans with flexible amortizations.

When a Commercial Real Estate Investor is looking to purchase income producing property utilizing any number of creative financing methods, one of the most important keys to their success is that their ability to provide adequate, verifiable proof of funds – P.O.F.- to both the seller and the lender. The verification of funds can enhance the investors credibility with the seller as well as satisfy the lenders requirement to know that the borrower has necessary funds to complete their transaction.

Proof of Funds

There are a few ways acceptable to lenders and sellers to show P.O.F. to close your Commercial Real Estate transaction:

• Bank Statements or Bank Verification
• Brokerage Account Statements or Verification
• Escrow Account Verification

“Bank Verification” This is the most acceptable and widely used method to confirm the investors can complete the proposed deal. As such money must be put into a bank account and confirmed by statements or letter from the banker.  This is a “hard” (versus soft) method of verification, because money are deposited in an account in the buyers name to serve as proof the buyer can complete the transaction.

“Brokerage Account Verification” Similar to bank accounts, brokerage accounts show acceptable means to complete a purchase transaction. Likewise, statements or letter from the brokerage house representative will meet the requirement to prove adequate financial strength. This is also a “hard”  method.

“Escrow Account Verification” This is the one method that can be hard or soft evidence of necessary assets as the escrow agent simply needs to write a letter of confirmation attesting that the borrower has finances available to complete the transaction. It becomes hard when money is transferred  into an escrow waiting for the closing.

Companies

Finally, there are companies whose sole purpose is to provide evidence of the financial ability of Commercial Real Estate Investors to complete their transactions. Many of them provide “Proof of Funds” and Transactional Financing. P.O.F. is necessary at the beginning of the deal and Transactional Financing is for the day of closing only. Both of these methods are a necessary part of an investors arsenal when utilizing creative financing.

Your rate is high, you may be facing foreclosure. Your lender will not work out a new plan to reduce your payments. Today there is a way out to reduce your payments make money with positive cash flow and keep your property. It is a short sale!

That does not make sense you may say. If you sell your property for less than you owe your current mortgage company, you no longer own the property. You sold it.

This is true.

Next if you sold it how can you receive a positive cash flow on property you just sold?

Sale Lease Back

There are companies that will buy your home from the bank if the bank is willing to negotiate a reduced price no more than 60% of the market value. The hedge fund will by at from you with the bank accepting less than what is owed to them. This is called a short sale. The company will then allow you to lease back your income producing commercial real estate based on the lower price than they paid for it. This allows you to have lower payments and profit from the increased cash flow. Though you no longer own the property the hedge fund will execute a lease back agreement that gives you the option to purchase the property within 10 years based on the value you originally owed on the property. This is a win – win win proposition.

Win Win Win

The bank wins even though they accepted less money than what was owed to them because they got a non performing asset off of their books. Too many non performing assets reduce the value of the bank and the value of its stock, increases regulatory activities and causes to have more assets in reserve than they would otherwise be required to. There is also no telling the cost to foreclose and maintain the property before it is actually sold.

The hedge fund wins as they purchase an income producing commercial property far  below value. The asset produces enough income to easily provide a good return on its investment. The sale lease back puts free management in place and a promised appreciated return on their investment of at least 60%.

The property owner wins because they are losing the property to foreclosure and the property is currently not generating the income to sustain the current mortgage. Now they can receive a positive cash flow based on much lower financing payments. Otherwise the owner would lose all rights to the property and no income. The sale lease back arrangement allows the property owner to regain ownership in 5 to 10 years.

Finally

This short sale / sale leaseback program for income producing commercial real estate is a good opportunity for real estate investors to keep their property and increase their profitability even after a short sale transaction.

Let us start off by first dispelling the rumor that down payment assistance (DPA) is something for nothing. For commercial projects the down payment may come from a third party but it is in reality funded by the seller. This means it is a creative way to allow the seller to cover the down payment and sometimes even the closing costs. This will allow a real estate investor to purchase an income producing property for little or no money at closing. To make any deal work you first need a motivated owner who is willing to cover the required DPA and the costs associated with it. THE DPA is Seller Funded!!!

Unlike residential programs that the DPA will come from a government entity, bank (for CRA purposes) or a non for profit organization in commercial transactions the seller always funds the assistance. No entity has a financial or other interest to give money to people to purchase multimillion dollar income producing investment property other than the seller.

Seller Funded DPA

Once you have an owner willing to utilize creative financing the assistance in the sell of their property you now have the first requirement for a successful creative transaction. Without a willing seller there are no creative financing deals. As a commercial real estate investor attempting to purchase property using little or none of their own money, your first job is to find that willing and motivated seller. But not only must the they be willing, they must be able. This translates to equity in the investment property. Lots of equity. If you expect to fund a project without using your funds the property should have at least 30% equity. Sure you can do deals with as little as 20% equity, but the options for financing are greatly reduced and the buyer will pay at least the closing costs which would include substantial fees for the DPA.

Given a willing seller and an income producing property with substantial equity, you now have the minimum requirements for a seller funded assistance program.

How the DP Program Works

• Willing Seller
• Property with Substantial equity
• Contract is written for value of the property (seller will receive agreed upon net amount)
• Third Party DPAC sends funds to escrow for closing (from buyer).
• Escrow title company sends DP funds plus fee back to 3rd party company at disbursement of escrow (from seller).

Example:

• PropertyValue: $1,000,000
• Loan amount: $750,000
• Seller to net: $700,000
• Down Payment: $250,000 from 3rd party DPAC
• DPA Fee: $30,000
• Return to DPAC from escrow: $280,000
• Balance for additional closing costs: $20,000
• Net to Seller: $700,000

Finally,

You have an opportunity to purchase property from motivated owners willing to utilize creative financing with seller funded assistance for both the closing costs and the required down payment. This is how the seller funded program works.