So, you want to buy a commercial warehouse, do you?
Well, if you do, then you might be interested in reading this blog.
I recently closed on a commercial, strata titled office/ warehouse property in Richmond, BC. Great property; only 5 years old, a nice sized warehouse on the main floor, and a small office on the second floor. To make it even better, I’m 99% sure that the last tenants used it as a porn studio.
Since I’ve purchased lots of residential real estate over the past ten years, I figured that this would be easy. The lender only looks at the property, not the borrower in the commercial real estate world, right? Well, this is certainly what I was lead to believe by most people out there, but this couldn’t be further from the truth.
We first looked at this place back in early July of 2014, and had an offer in shortly thereafter, subject to the usual bunch of things. Inspection…check! Environmental report…check! Appraisal…check! Everything was going great…until we got to the “obtaining financing” portion of the contract. This is pretty much where everything ground to a hault.
BDC..no
BMO…uh-uh
TD…no
Canadian Western Bank…no thank you
RBC…nope
Ok, maybe going directly to the big banks wasn’t such a great idea, even though I have mutiple business and personal accounts with all of them. At this point, I decided to go with my trusted mortgage broker. Surely, after working with him on so many deals, he could piece a deal together?
Well, he did, but the problem was that the lender wanted 30% down, which came to around $100k. Unfortunately , like most investors, I was a little shy in the cash department, and a little heavy in the ambition department.
At this point, after filling out no fewer than 10 personal net worth statements, and having my company’s financials torn apart and questioned by each and every prospective lender, I was ready to give up.
We could rent a property for about the same as our monthly mortgage payments, property taxes, and strata fees, so maybe it was best to go this route and give up on the idea of building equity. Keep the $50k in the business to let it grow…makes sense, right?
At this time, we came up with yet another idea for some creative financing. We proposed what is referred to as a “wrap” mortgage. The seller would transfer title over to our company, we would take over the monthly mortgage payments, and then after a year’s time arrange for our own financing and pay out the seller entirely. Essentially, the seller would wrap a second mortgage around the first from the bank. The seller agreed, and we were on our way… but when he asked the bank about this, of course they rejected it outright. Oh, the ol’ “due on sale” clause rears it’s ugly head yet again…
Back to the drawing board. Again, I had that feeling that perhaps this wasn’t going to work, and the path of least resistance (renting) would be the easiest one. Then, at the final hour, along came a new mortgage broker promising that he could get this deal done. Well, it took him a couple weeks, but much to my amazement, he did just that.
We ended up putting 15% down ($50k), the vendor carried a second for 15% (reasonable rate, payable in one year, interest only payments), and the Credit Union carried the rest. Amazing! No need to refinance in a year, either.
Lessons learned here; be creative when financing in the commercial world, and never, never give up! As long as you have a willing buyer and seller, persistence will ALWAYS pay off! There are many lenders out there, it’s just a matter of turning over enough rocks until eventually you find the right one!