Advice on commercial loan and paying down points

[Gabriel Abikzer]

I am a first-time investor looking at a prime building in Westwood near UCLA selling for about $4.5+ million. I am considering putting 50% down and financing the rest. Even with 50% down, numbers are tight for the first year, but with 7% annual increase in annual rents, post-Covid return of UCLA students, and appreciation in this prime area, I think I will do well.  

I am currently focusing on commercial loans. I see commercial loans are a lot more expensive than residential loans and I understand that this is due to increased risk in the commercial arena. I am considering reducing the commercial rate by pre-paying points as my strategy is "buy-and-hold" in the prime area on a 30-year fixed loan. I don't have a commercial broker I am working for specifically, but the few I contacted online are confusing in their answers. 

My question is how low can I pay down the commercial interest loan? For example, if someone quotes me 5.5% interest on a commercial loan on my LLC with no points, can I reduce that 5.5% by 2% if I prepay 2 points. So, if my loan is $2 million dollars, I would pay $40,000 for 2 points, and then my rate would be 3.5% for the next 30 years. Is this how it should work?

All help greatly appreciated. 

[Account Closed]

You can pay down rate by paying points, but 1 point is not equal to 1% lower in interest rate. Different lender has different conversion ratio, it's about 0.4-0.6% lower. If you loan amount is over $2million, there is a chance to get rate around 4.5% without paying extra points.