Each week we receive about 10-15 inquiries from Realtors, mortgage brokers, landlords, and medical / recreational business owners who want to find out if we have a loan program that would work for their unique circumstances. Below is a summary of the most common questions and answers that we receive for cannabis private money real estate financing inquiries.
The Most Important Factor is the Appraised Value of the Real Estate:
I listed appraised value of the real estate first and foremost because any private money loan we do will be based upon appraised value of the real estate and not bubble-inflated prices or anticipated value after the business gets up and running when it’s expected to generate astronomical cash flow.
Private money lenders go into the loan assuming that at some point down the road within 2-5 years, things could go awry for the borrower(s), the business might fail, licenses revoked, and the owner(s) will default on the loan leading to a possible foreclosure sale. If the 65% Loan-To-Value (LTV) loan is against a warehouse, then the lender assumes that the eventual buyer in a foreclosure sale will be a plumbing supply company or cabinet maker rather than another cannabis operation.
Just because the property is used for cannabis purposes doesn’t mean that a lender is going to issue a $600,000 loan against a property that appraises for $600,000 even if the turnkey building could sell to another cannabis business for $850,000. Everything is based upon appraised value of the real estate and not the inflated values that cannabis buildings are currently selling for.
Can You Finance Agricultural Land?
Yes, we can finance up to 55% of the appraised value of the agricultural land without giving credit to the cannabis-specific investments and improvements (fences, security cameras, gates, irrigation, power system, etc) that have been made, which alone often cost over $500,0000.
If the agricultural land also has a house or two, pole barns, horse arenas, stables, paddocks, etc, then we could finance 60-65% LTV, just not giving any credit to the cannabis-related improvements.
How About An Owner Occupied House With A Metal Barn For Licensed Growing?
Since it’s an owner occupied property, which falls under consumer loan regulations, we cannot do the loan. We only do business purpose real estate loans (not to be confused with business loans).
We see this quite often in Oregon as licensed growers are operating out of a metal building on their property. At present, there are only a handful of lenders who will do owner occupied private money loans (consumer loans) and there are only a handful of private money lenders that will do cannabis real estate loans (business purpose loans). Nobody will do a combined owner occupied consumer loan and cannabis-related business purpose loan.
For people buying these types of properties, especially in Oregon, obtaining seller financing for at least five years, and preferably ten years, might be the best route to take.
If seller financing isn’t an option, then renting out the house on the property, providing rental agreements, cancelled rent checks from the tenant, and being able to prove that you live somewhere nearby is a way to obtain a private money loan. So far, this situation, is pretty rare. But if it did present itself, we would most likely have a loan available.
Can You Finance Properties in Desert Hot Springs and Adelanto?
At present, we don’t work with any private money lenders or trust deed investors who will consider making a loan in either of these areas due to the skyrocketing value of land and buildings for the cannabis-related properties.
It’s not unusual to receive a call requesting $4,000,000 to acquire a turnkey operation or 100% construction financing out in Desert Hot Springs or Adelanto. We can only lend on the real estate, not the business or any of the cannabis-specific tenant improvements like lighting, irrigation, security systems, or against future cash flow (factoring) that the business could generate. A real estate appraisal may come back at only $600,000, giving value only to the basic building and land rather than the actual or expected cash flow of the business.
(Remember, we only work with appraised value of the real estate as if the building will be sold to a plumbing supply company or a cabinet maker in the event of a foreclosure.)
There might be other lending sources willing to make loans out in this area, but at the moment, we don’t work with them. Usually, with $4,000,000 requests for a business and real estate likely appraised at $600,000, we tell people that they would be better served seeking out an equity partner rather than a debt partner (private money lender) to get this project off the ground.
Can You Finance Dispensaries?
Yes, retail dispensaries can be financed at 60-65% LTV of appraised value. We’ve had situations where our borrower, the buyer, was buying the building that their dispensary had been renting for the past few years and were overpaying for the property by 25-50%. Our loan came back at 65% LTV of appraised value, not purchase price.
$600,000 Purchase Price
$400,000 Appraised Value
$260,000 New Loan – 65% LTV
It’s pretty common to see this type of price disparity in the acquisition price and appraised value of cannabis related purchases. Sometimes, it makes sense for buyers to overpay, especially if they’re already established in the location and the business is doing very well.
Can You Do Construction Financing?
Yes, but it’s not preferred compared to funding the purchase or refinance of an existing building. In most cases, it might be easiest to seek out local hard money financing for the construction of the building since local lenders can walk the property every month and release funds to pay contractors. It’s harder for the lenders we work with in Seattle and The Bay Area to make trips or send an inspector out to confirm that construction has been completed.
Most local hard money construction lenders will be okay with a 6-12-month construction period. Some will extend the loan out to 24 months while others will want to be paid off upon completion of the facility.
We have long-term financing programs consisting of 10 to 15 year fully amortized loans (principal and interest), 20-year amortization with a balloon payment in 10 years, 5-year interest-only, or 10-year interest-only with rates starting in the mid-9.00% range.
For larger loans, above $3,000,000, we have 24-36 month programs with interest rates starting at 11.00%+.
What Are The Typical Loan Terms?
Pricing depends on location, condition of the property, borrower strength, established business, etc.
A good sample is the 15-year fully amortized terms below:
- $1,000,000 Appraised Value
- $600,000 Loan Amount
- 9.75%+ Interest Rate (Prime + margin)
- $10,593/mo Monthly Payment
- 5/4/3/2/1 Prepayment Penalty during first 5 years
- Closing Costs: 5 Points + Commercial or Agricultural AppraisalFor larger loans $3,000,000+:
- $5,000,000 Appraised Value
- $3,000,000 Loan Amount
- 11.000%+ Interest-Only
- $27,500 Monthly Payment
- 24-36 Month Term
- Prepayment Penalty / Guaranteed Interest Negotiable
- Closing Costs: 5 Points
How Small OR How Large Of Loans Can You Do?
The minimum loan amount is $200,000 up to $2,000,000 for the longer-term loans (5-15 years).
We have a gap from $2,000,000 to $3,000,000 at the moment.
And then it goes from $3,000,000 upward.
Can You Finance Equipment?
No, we do not finance equipment at this time and probably will not venture into this area. That falls into the equity partner category and we only deal with debt financing.
For specific questions, please send email inquiries to email@example.com.