Welcome to the Wisdom Lifestyle Money Show. I'm your host, Scott Dillingham. Today, I'm going to talk to you about a special 100% financing program. It is for business owners. However, I find a lot of investors, real estate investors, are business owners, so I thought it was appropriate to speak about this.
Scott Dillingham:I wouldn't really wanna talk about other programs that were not applicable to investors. So I wanna touch on this program. Many investors and business owners don't even know that it's available. So if you're buying an owner occupied commercial space, whether that's office building, an industrial building, a manufacturing building, it doesn't matter. There's programs out there where we can qualify up to 100% of the building's value.
Scott Dillingham:Now, not every deal you can get a 100%. We have one right now where the client was able to get 90%. Now the client is very happy with 90, so we're moving forward. But it depends on your net operating income. So if you Google net operating income, you'll see what it what it includes and what it doesn't include.
Scott Dillingham:But pretty much what the net operating income is, is it's your net income after your expenses. That's essentially a high level. There are some expenses we're able to add back into your income if you're purchasing a building as opposed to being a tenant at a building. So imagine, let's just pretend you're a dentist and you're currently renting your office space and now you're going to be buying your office space. Well, you're paying rent.
Scott Dillingham:So let's just say that rent was a $100 for the year. I'm just making this up. Let's just pretend it's a $100 for the year. We can take that $100 and remove it as a liability because it's going to disappear and we show that as income. There's little tricks that we can do to boost your NOI and I think it's so important.
Scott Dillingham:This is why you have to call us guys. If you're hearing this or you know someone who's in this scenario, call us. We had many clients, many deals where when we're working with lenders that are inexperienced, they're not finding things. So perfect example, there's a massive credit union and I'm not gonna say their name on here, but we sent them the client's business financials and they're like, oh, they don't qualify for this program. Their financials are very weak.
Scott Dillingham:And I'm like, what are you talking about? And I was actually kinda mad because it's a super strong deal and I'm like, no. This property debt covers at 1.6 based on the financing the client's looking for. What are you smoking? Like, what's going on here?
Scott Dillingham:And she's like, I didn't realize you wanted me to add back in the rental income and all these expenses. And I'm like, what are you talking about? Like, that's your job. That's what you do. That's underwriting.
Scott Dillingham:I presented it to you. And I said, here's the debt coverage ratio. Like, it gave you everything. You just had to pay attention and spend some time on it. So I find there's lots of people that are like that at different lenders that we work with.
Scott Dillingham:That's why it's very important that you work with experts like us because we're not submitting your files and hoping it sticks. We're doing the underwriting in house so we know exactly what you qualify for and what you don't. So when we submit it to a lender, if they're being foolish, we can call them out like that. So that's exactly what happened. I called them out.
Scott Dillingham:I highlighted everything to them and they're like, okay, we'll approve it. Do you know what I mean? Like, why do we even have to go through that in the first place? But unfortunately, a lot of lenders are lazy and they don't spend the time. Right?
Scott Dillingham:So anyways, keep that in mind, partner with us. If you're looking to buy an owner occupied building or you have a friend or whoever, it doesn't matter who's buying an owner occupied commercial building, reach out, we've got the programs. Now let's dive a little bit more into the program. So we talked about the NOI and how we get that from the business financials. So then what we do is we run like a reverse mortgage calculator.
Scott Dillingham:So we say, okay, if we put in a million dollars of loan amount, how much are the annual payments? And we divide the two numbers together to get a debt coverage ratio. So ideally on this program, they wanna see a 1.2 on a debt coverage ratio. So that means how much income is above. Right?
Scott Dillingham:So they wanna see a 20% surplus of income essentially is what a debt coverage ratio of 1.2 means. And sorry if this sounds like a foreign language to anybody here listening. I know this is more of an advanced show, but I wanna like let you know like what's going on and what's out here. So we take the net operating income, we divide it by the debt coverage ratio, it by the monthly payments of the mortgage to get the debt coverage ratio. For at 1.2 or above, we're good.
Scott Dillingham:So let's say this million dollar loan that I've input only actually equals 50% of the property's value, but we're at a debt coverage ratio, let's just say 1.7. That means we can increase the loan amount until we get to the 1.2. So maybe that loan amount is 1,800,000.0, when we divide that payment into the net income, if it equals the 1.2, then it's pretty rock solid. That's that's pretty much what we're gonna get. Some lenders vary on the debt coverage ratio of what they're looking for.
Scott Dillingham:Some look at different things, slightly different. And again, that's why it's important to have a a broker on your side or a mortgage team essentially that has multiple lenders that have this program so we can shop around and optimize it for you so you're not stuck. But essentially, yeah, we we get this going and we we move forward. There are fees in the commercial space. It's very standard.
Scott Dillingham:Okay? So someone coming from the residential who's not done any commercial might be like, what the heck? Why is there fees? There is fees. So just be aware of that.
Scott Dillingham:We will let you know the fees. It does depend on the size of the loan, the location, the type of lenders available, if it's complicated or easy. Right? So we kinda look at everything, and we'll make a custom package for you. But ultimately, the rates are very competitive.
Scott Dillingham:It's not too different compared to the regular commercial programs. Now keep in mind, commercial is always going to be more costly than residential as far as rates are concerned. I'm gonna say 50 basis points to maybe 200 basis points increase for the standard, you know, commercial loans. Generally speaking, these loans go out at a twenty five year amortization as well. I have seen some lenders wanna do a twenty year, even a fifteen.
Scott Dillingham:So it it all depends. Again, this is why it's important to work with us because we get this program and we we do it. Our commercial team, if you look real closely at it, there's a lot of experience, like we've got developers on the team, we've got people that have specialized in business financing, equipment financing, they've been with lenders for years. Right? So the people that you're working with through us is is very strong.
Scott Dillingham:But so anyways, so then you get this this this financing that can potentially go up to 100%. So that's what I'm saying up to because if the debt coverage ratio only supports a loan of 85%, that's all you're gonna get. However, that's still fantastic. So if you're buying let's say you're buying an office building, let's just say, without this program, a lot of lenders right now are scaling back office buildings to 65% loan to value because of the high vacancy for office buildings. And I'm recording this at the 2025.
Scott Dillingham:So maybe things will change in the future. But right now, that's about the play, 65, maybe 75, you know, it it depends on the lender and if the office space has got fully tenanted, are they long leases? Are they triple net leases? Right? Like, there's all these different things.
Scott Dillingham:So it is case by case, but a lot of lenders wanna just put it in a bucket and say 65% loan to values. Imagine you're buying that. Now you can get like 85, 90, even a 100%. It's massive. And these programs, like we have lenders that it covers all of Canada.
Scott Dillingham:So it really doesn't matter where you are, we can generally source this for you as long as those lenders lend in that area. Right? So really remote locations, you know, that might not be so attainable. But if it's definitely major or more popular areas, it's it's a possibility. So we're gonna wrap it up with that.
Scott Dillingham:I was really excited about this program, so I just wanted to share it with you. It's actually been out forever. I haven't decided to talk about it again because this is a show geared towards investors, but I'm seeing the synergies where investors are tapping into this program. Like, we've got well, actually, dentist, ironically. We have a dentist who's buying an investment property, and then they're buying their owner occupied properties.
Scott Dillingham:So they're doing different stuff, right? So it's I think it's important to put it out there and to know. But the main benefit here too, is if the 100% financing program works for you and it gives you this higher leverage, Imagine what that's gonna do to your business when you have that extra capital, because that's the thing with businesses, right? You need to have that liquidity, whether it's for payroll, expenses, you gotta buy supplies, it doesn't matter if you're a dentist or whoever, They have to buy all that equipment before they can service the customer, right? So it's like, it's good to have more liquidity on your side than, you know, putting it into down payments, helps make a stronger business case.
Scott Dillingham:Anyways, we'll leave that there. Thank you so much for tuning in today. Please share this episode with somebody that is self employed, that wants to buy their own office space, or maybe they are renting because this program is fantastic. The caveat here, if you have a weak business financials, it will not work for you. So it's not for that type of person, but it is for everybody else.
Scott Dillingham:Anyways, thanks so much for tuning in, and we'll talk soon. Take care.