Using Commercial Loans to Fund Your Real Estate Investments

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Unless you are sitting on a pile of cash, the purchase of your buy and hold properties are going to have to be financed through some type of loan.  The first few loans for your investment properties are relatively easy to get.   We will call these types of loans “traditional” financing.  Just shop around with any bank or mortgage broker and they will likely be able to help you buy that first, second, third and perhaps even fourth rental property.

After that, getting “traditional” financing becomes much more difficult.  Most “traditional” lenders will cut you off.  They will tell you that you no longer fit their criteria.  You have “too many” properties.  The real problem is they cannot sell these loans on the open market.  But you want to keep investing and growing your business.  You would eventually like to quit your “real” job.  So what can you do?

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What are Commercial Loans?

One thing you can do is try can get commercial loans.  These loans are different from more “traditional” financing and can help the smaller (and larger) investor grow their investing business.  Commercial loans are different from more “traditional” sources of funding in several ways.

  • Commercial loans are generally found at smaller, community banks.
  • Commercial loans are often held in the bank’s own portfolio, rather than bundled and sold on the open market to Freddie Mac or Fannie Mae for example.
  • Commercial loans offer much more flexibility with ownership, property type and number of properties owned.  With commercial loans, you can actually title properties in your LLC for example.  You can’t do that with “traditional” financing.

How to Get Commercial Loans

Commercial loans used to be very easy to get before 2008.  Now they are much more restricted, but things seem to be loosening up just a little.  Your best bet these days is to get a referral from another investor who is already working with a particular bank.  This is another reason why local REIA’s can be a big help.  Plus you need to know your numbers and some “banker speak,” but that is a topic for another time.  If you can get a commercial loan, here are some key points to remember.

  • The interest rates are higher.  No more 3% rates.  Rates will be closer to 6 or 7% or more at the time of this writing.  So be sure to update your cash flow analysis.
  • Amortization will be shorter.  Gone are those 30 year amortization schedules.  15 and 20 year schedules are the norm.  This will increase the amount of interest and principal paid every month, so again adjust your cash flow analysis.
  • There will likely be a balloon payment or a call.  This means that the loan balance is due in a very short time, usually 3 to 5 years.  So while the payment schedule may be determined by a 20 year amortization rate, at the end of 5 years the balance is due and you will have to pay or refinance the loan.  You need to have a plan to deal with what one investor I know calls “this slow moving bullet.”

I wish we investors could get all the 30 year fixed rate loans we wanted.  But that is just not the case.  One option after you have exhausted the “traditional” source of financing is the commercial loan.  Commercial loans are a great tool for your investment business, just be aware of the terms going in.

About Author

Kevin Perk

Kevin Perk is co-founder of Kevron Properties, LLC with his wife Terron and has been involved in real estate investing for 10 years. Kevin invests in and manages rental properties in Memphis, TN and is a past president and vice-president of the local REIA group, the Memphis Investors Group.


  1. I am just getting into real estate so I don’t know if using commercial loans will happen anytime soon for me. Great information and I am sure this is something I will come back to in the future. Even 3-7% seems great compared to the HML I have been talking to recently. Most of them are asking 10-14% with points from 2-6% on top. Are you allowed to buy residential properties like single family homes with these loans?

    • Yes, Kevin, I have the same question as Thomas. The use of the term commercial is confusing me because traditionally that is reserved for 5 unit and above properties. But I’ve never heard of the 4 loan limit applying to purchasing multis, only SFR’s.

      I’ve also never heard of a balloon payment on SFR financing – maybe an ARM that’s gonna reset, but not a balloon.

      Can you clarify. Thanks!

      • Kevin Perk

        Thomas and Sharon,

        Yes, you can by single family homes with a commercial loan. Think of the term commercial in this context as a loan for an investor rather than a homeowner. A commercial loan is one that is tailored for a particular investment and customer because the bank has so much more flexibility because they are holding the loan in their portfolio. I have used commercial loans to buy apartment buildings, duplexes and single family homes. The bank will tailor it to what you want to do.

        But no matter what you purchase, the interest rate, amortization schedule and balloon apply. Just the way it goes.

        Hope that clears it up, if not let me know,


  2. I have a commercial loan on one of my properties through an LLC. The original rate was 6% from 2008 – 2011 then refinanced with the same bank for a $75 fee down to 5.6%. That rate will go 5 years until 2016.

  3. It used to be 4, but now the magic number is 10. Per Fannie Mae’s updated guidelines, March 2009, you can now do 5-10 in your own name with some stipulations, including having 6 months of reserves on each financed property. And then you need to start looking into CL’s but you also have portfolio loans, blanket loans “wraps”, etc…

    And maybe on down the road, set up a Private, non-traded, local REIT Fund and pool other investors together to create an even bigger portfolio. Then once your organization gets “accredited” status, (assets exceeding $5 mil) start bidding on pools of debt, notes, ABS/MBS, or blocks of REO’s direct from the banks… Sky’s the limit!

    • Kevin Perk


      Good points. I too know about the 10 number. But while that may be the case, every mortgage person I talk with say their “investors” will not go over 4 so the limit is 4. Have you seen the same?

      Thanks for writing and commenting,


    • Kevin Perk


      Wow, great job. Commercial loans do offer a lot of flexibility. I guess we all need to remember the old adage, “if you don’t ask, you don’t get.” You never know what the bank might do, especially if the bank and the seller are motivated.

      Thanks for sharing and I hope you find many more similar deals,


  4. My brother is a mortgage banker and has assured me that both me and my wife can get 10 properties, so we are financing them all individually for a total of 20. We have credit scores right around 800, not sure if that is a factor or not. He better be right or in about a year or so I’m not getting him any more Christmas gifts.

    • To purchase and finance a home through Fannie Mae with more than 4 existing financed properties, here’s the criteria I found investors may be required to meet:

      -Own between 5-10 residential properties with financing attached
      -Make a 25 percent down payment on the property; 30 percent for 2-4 unit
      -Minimum credit score of 720
      -No mortgage lates within the last 12 months on any mortgage
      -No bankruptcies or foreclosures in the last 7 years
      -2 years of tax returns showing rental income from all rental properties
      -6 months of PITI reserves on each of the financed properties
      -For refinances, loan-to-value is capped at 70% for all property types.

      And then, as a last step to reduce fraud, Fannie Mae’s multiple property program requires applicants to sign a 4506-T — a form giving lenders permission to verify your submitted-with-the-loan tax returns against the official, IRS-filed version of the same.

      As Kevin states though, the trick is finding the lenders who will originate one of these. Shawn you’re very lucky to have a family member in the biz!

  5. Do you ever have an issue securing a commercial loan for a small rental?
    I have been told by a few people in my area that if the deal is small a lot of banks won’t want to do the deal.
    Not sure how small is small but I was talking about things north of $150K when getting this warning.

    I have not NEEDED this yet so I have not done much beyond this low level exploratory research.

  6. Sandeep Sukhija on

    Just stumbled upon this older post while searching something. Great post!

    I am at a situation that I will be needing the commercial loan very shortly. I have hit the 10 conventional mortgage mark and my lender has told me – “NO MORE LOANS FOR YOU ” 🙁

    I am in California but my next set of buy-and-hold purchases are going to be in Houston (Texas). Can anyone suggest a local bank (either in SF bay area or Houston) who I could talk to regarding the commercial loan?

    B2R Finance is another (new) provider for commercial loans. Their terms seem very similar to typical commercial loans outlined in this post. Not sure how well they compete with local banks though.

      • Sandeep Sukhija on

        I haven’t paid much attention to private lenders (yet). I have assumed that private lending comes at interest rates close to 9%-10% (or higher) and that will simply not work for me (as internal CAP rate of my asset is ~10%)

        • Kevin Perk

          Private lending is whatever you can make it out to be. Start with friends and family and never discount who may have money. 6% to 8% is much better than what CDs are paying these days. Remember, if you don’t ask, you don’t get.

          Good luck,


  7. I’ve recently bought my first investment property through a fha loan which comes whith a lot of rules. I’m looking to continue investing and I’m in search of the best direction to go. Should I go with a major hard-money lenders. I’ve found it to difficult to find a bank that will fund investment purchases.

    • Kevin Perk


      What are you looking to do? Do you want to buy and hold or flip somehow? If you want to buy and hold then hard money is not the way to go. It is too expensive and the time horizon is to short. If on the other hand you want to flip, hard money may be the way to go. Just be sure to plug the hard money costs into your analysis. If you want to buy and hold shop around at local banks. Many will say no, but if you present yourself well (see my post on shopping for commercial loans here: ) you will find one that says yes.

      Good luck and thanks for reading and commenting,


  8. I just closed on property number 10, all with 30 year mortgages, with interest rates from 4%-4.875%. At closing i was introduced to a local vice president of a bank, who informed me she was very interested in bundling all of my loans into an attractive commercial loan, and was very excited in speaking with me. The person who introduced us is not only my mortgage broker, but a very trusted friend. We didn’t talk rates or fees. My question here is this. Most of the homes I bought were great deals, and all undervalued. I paid $133k for a property that today would go into the market for $190k. If I were to bundle, do I borrow only what the pay offs are, or what the appraised values are, and recover my 25% down payments, plus the equity? There’s a big difference in those figures. In a way, it would be nice to get back all that money, but I guess I’m just passing interest on money that it’s already mine? Any suggestions/recommendations.

    • Kevin Perk


      It will depend on what the terms are they offer you. Some will “roll over” the entire financed amount (depending on appraisal) others will want 20% down. I would talk with her and she what terms she is offering.

      If I were you, I would not refi your loans. I would keep the low rates and 30 year terms. You are not going to get a better deal. Talk to the bank VP about what she can do for you going forward.

      Good luck!


  9. Rates can still be low with long term financing. It comes down to a lot of things including LTV, credit, type of property and the area where the property is located to name a few. A good commercial mortgage broker will have many lenders to choose from and should be able to match up the one that best fits your needs. The advantage of a broker over a banker is the broker has many sources to get funding.

    • Kevin Perk


      Sorry for the delayed response.

      Try a local bank in your area. You may have to try more than one. Just keep knocking on doors and explaining what you need. Have your numbers ready and laid out in simple, easy to understand format.

      Good luck,


  10. I have a corporation that owns 3 SFR rental properties outright and is titled in corporation name. I am looking to borrow money against the equity of the homes to purchase a 4th SFR rental in the corporation name. WF and chase have both told me that i cannot borrow from them unless i do so in my name personally. is this true for all banks? anyone know of any banks that will cash out the equity of my corporation and keep all transactions in the businesses name and not me personally? thanks!!

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