Expert: Terrence Cullen - 2/18/2008

Question
QUESTION: I am in the process of making a deal for a single tanent retail property valued at about 925K. My bank has agreed to finance this using personal guarantee and loan upto 90% LTV and rate below 5.0%. What are the pros and cons of personal guarantee financing versus non recourse financing ? Does personal guarantee limit my ability to obtain financing if i was buy more real estate ? I have an excellent credit and a net worth of about 2M.

Thank you

ANSWER: The loan terms mentioned are much better that is available in the market. Personal recourse shouldn't be a deterrent with these terms.
Also, non-recourse loans for properties under $1M are hard to find and for 90% loans they are non-existent.

The loan will show up on your contingent liabilities and probably would be a consideration as you increase your portfolio, but with these terms the loan mentioned has very favorable terms.

If you need more insight, tell me more about the property. BTW, what institution offered this loan? What state is the property located in? Certain states protect borrowers property and some don't.

 Good luck,
TC

---------- FOLLOW-UP ----------

QUESTION: Thank you. Property is in Michigan. I have this offer from couple of local banks. This is based on a longstanding business relationship and deposits with these banks.
I would like to ask you another question. I own one commercial building that is self occupied and is held in a LLC. For this new investment acquisition, what would be a better option- adding this to the existing LLC or creating another LLC ?

Answer
The advantage of the single asset entity is flexibility for refinancing, adding supplemental debt, and selling the property,  and the disadvantage is the paperwork. Sometimes cross collaterallizing is requested on non-recourse loans in order to lessen risk.

 Different SAE's for each property is the way to proceed if you plan on possibly selling the property or increasing your portfolio.

Good Luck,
TC