Can TIA go towards the down payment of loan meant to remodel a building?
I’m looking into a large format space for an entertainment venue and do not want to cash out retirement portfolios due to tax issues. If an owner of a building is willing to provide a substantial amount of money for a remodel to this concept can that money be used as the 30% cash that a bank will require to fund the loan? For example in a residential purchase, a gift may be given to a buyer to help with down payment or closing cost. Is that acceptable in the commercial side of loans for a business?
Thanks for the question. You can ask different commercial lenders what their rule is on this, but it sounds unlikely. Money to cover the costs of rehabbing the property are separate from the down payment and I’m not aware of any commercial lenders who will finance 100% of a property’s value.
Some focus on the loan-to-cost and the after-repair-value, which is different from focusing on the appraised value (though it would still require an appraisal). I’d be curious if any lenders and the seller would do a workaround if you could apply the 30% as the down payment instead of rehab costs. Maybe that’s what you meant? Could the seller be a partner? Ask lenders what might work best, if anything at all. I have heard of gift monies used as a down payment, but not 100% of the down payment.
If the seller is offering 30% rehab funds, in what form is it being offered? Discounted off purchase price? Cash? Something else? And is it 30% of the property’s value or 30% of the rehab costs? Does the seller intend to recoup that money somehow by putting a lien on the property until it is repaid, or it being offered as incentive to buy? If the latter, I’d be curious why, what the building inspection reveals, and what the property will appraise for.
Here are some articles from our site that can help explain some of this. The info is still applicable even if you’re not flipping the property. I’ve also include an article to some hard money lenders. Hard money loans are more costly than some other types of loans, but the lenders tend to focus more on the viability of the deal. Might be worth a call and seeing if you can pick their brains for how you might be able to make this work.
Hard Money Lenders: https://fitsmallbusiness.com/best-hard-money-lenders/
Hard Money Loans: https://fitsmallbusiness.com/hard-money-loan-rates/