Purchasing pizzeria and building questions

The pizzeria is 30K and the building is 400K. The building has another tenant that pays $2K per month. The current rent of the pizzeria is $1500. My question is securing the loan. What kind of interest rate would am I looking at and how much do I have to put down? I have 2 other partners and we all have average - above average credit scores, but all have homes with mortgages. Would I be approved with less than 20% down on the building or do I need more $$?

Depends on how much the building is worth. If the building is worth 480,000 or more you may not need anything down. As for your mortgages not a big deal.

The bottom line is this…you need to have enough “collateral” to pay for what you borrow. The bank just wants to know if you default there is something securing the loan. Be it money or property.

When we purchased our second location we didn’t have to put out a dime. Actually got 1500 at closing. But the building was worth 2+ times what we were gonna pay. We got lucky the guy was about to lose it…sold it for what he owed.

ohhh duh in answer to your questions…

The loan for commercial property is typically 10 years or less.

The APR will be higher than a home mortgage. Usually by around 2.5 or 3 percent higher.

You are in luck there is a tenant because that will be taken into account as well.

Run your credit reports to make sure ALL of you are on the great credit side don’t assume you are.

I own both my locations and in fact am going to the bank today to re-write the loans.

A good rate for commercial property is NYT prime. Today, that is 8.25%. You might be able to get slightly under that, more often banks will offer you a half point or a point above.

It is possible to get a fixed rate for a period of five years or so and a 20 year amortization.

Banks will want 20-25% down, some state programs may accept less. The SBA also has programs that can be more aggressive.

Any bank you approach will want your deposit business as well.

Ranges for conventional commercial mortgages:

Interest: .5% below prime to 2% above prime (today 7.75% to 10.25%)

Fees: $250 to 1% of the loan with .5% to 1% being most common.

Term: 5 to 10 years with amortizations up to 20 years. (If you go with a five year loan, ask for the right to rewrite the loan at the end of five years on the same terms for asmall fee like $50.

Adjustability: I have seen fixed up to 5 years, annual is more common.

The loan I am doing today is NY Prime fixed for five years with a 20 year amortization. The fee is $250 as this loan is already with the same bank. I am switching from a .5% above prime which adjusted every year on a 15 year loan. This new loan will reduce my payment as I needed to increase cash flow for some other needs.

Beef - You can find a bank to do this at 10% down, assuming good credit and that the value of the real estate is close to what you are paying.

Int rate will be anywhere from 8.25 - 9.25.

The good part, when you are buying real estate, a lot of banks will allow for 10% down on the whole purchase ($440k for you).

Just to be sure I understand what you are saying . . . the banks should lona me 90% loan to value at 8.25% to 9.25%? Would that mean that if I wanted to buy a building, and could negotiate a 90% of less of appraised value deal somehow, that bank would loan me the whole purchase price?

Maybe the banks are more agressive elsewhere, but they will not loan 90% around here. The SBA will, but if you are going to a bank I would suggest you ask them about it before you make your plans.

Also, my guess is that you will find that they will NOT loan 100% on a purchase such as you desceribe. They will consider that the price you pay is the value and look for the same 15-25% down that they normally want.

Commercial mortgages are generally held by the lender and not re-sold, unlike home mortagages.