Commercial loan on 4 unit?

12 Replies

Can one get a commercial loan on a 4 unit/4 plex? I don’t think you can, however I saw some 4 units on loopnet so it got me wondering. If not, can you take a hodpodge of 1-4 units, group them together, and then get a commercial loan? I know this works with a portfolio, however I’m under the impression a commercial loan will have better terms than a portfolio. Seems like it might be a neat way to BRRRR, buy distressed properties, get them performing, then lump them together on a cash out commercial loan. Impossible?

We often take a group of properties, usually SFH and small multis, to community banks to refinance them as a package, but it's more for convenience. Generally speaking, residential loans are better than commercial (unless you get to really big apartments and Fannie Mae products and the like). The appraisals are a lot cheaper for example. I would just see what banks will offer for such a property and go from there.

Originally posted by @Brent Coombs :

@Pat Jackson, why would you prefer a commercial loan? Just askin'...

I was wondering if you could take an existing 4 unit that's underperforming, get it going correctly (raise rents, fix it up, lower net operating expenses, etc) if you could get a commercial loan and get some cash back.

Doesn't sound likely.

Originally posted by @Pat Jackson :
Can one get a commercial loan on a 4 unit/4 plex? I don’t think you can, however I saw some 4 units on loopnet so it got me wondering.

If not, can you take a hodpodge of 1-4 units, group them together, and then get a commercial loan? I know this works with a portfolio, however I’m under the impression a commercial loan will have better terms than a portfolio.

Seems like it might be a neat way to BRRRR, buy distressed properties, get them performing, then lump them together on a cash out commercial loan. Impossible?

 If you can qualify for a residential 30 year loan that's the route you should take. The terms are much more friendly. But if that isn't in the cards you can get a commercial loan but it's tough. Most commercial lenders don't want something that small in their portfolio. However you hit hit the phones hard enough eventually you should find someone who is interested in lending on it.

James Wise, Real Estate Agent in OH (#2015001161)
216-661-6633
Originally posted by @Pat Jackson :
Can one get a commercial loan on a 4 unit/4 plex? I don’t think you can, however I saw some 4 units on loopnet so it got me wondering.

If not, can you take a hodpodge of 1-4 units, group them together, and then get a commercial loan? I know this works with a portfolio, however I’m under the impression a commercial loan will have better terms than a portfolio.

Seems like it might be a neat way to BRRRR, buy distressed properties, get them performing, then lump them together on a cash out commercial loan. Impossible?

 If you prefer a slower closing, higher rates, ARMs, higher fees, etc, then yes you can take out a commercial loan on a residential 1-4 unit rental property. 

Commercial appraisals are based more on current rents than current comps, and commercial appraisals/underwriters generally ignore all forms of projected rents in favor of current actual rents. 

The big upside of commercial v residential is that your personal finances aren't emphasized as much as they are for residential. 

Chris Mason, Lender in CA (#1220177) and California (#1220177)
415-846-9211
Originally posted by @Pat Jackson :
Originally posted by @Brent Coombs:

@Pat Jackson, why would you prefer a commercial loan? Just askin'...

I was wondering if you could take an existing 4 unit that's underperforming, get it going correctly (raise rents, fix it up, lower net operating expenses, etc) if you could get a commercial loan and get some cash back.

Doesn't sound likely.

What Chris Mason wrote! I believe what it boils down to is: Whether you go for a residential loan or commercial, their appraisal for a 4-plex will still be based on sold comps, rather than rent.

@Pat Jackson

You attracted some real heavy hitters with this post.  Well done.

The short answer to your question is yes, you can get commercial money for your 4 unit.  The ONLY reason to do that would be if you don't qualify for Fannie/Freddie money (debt ratio is high, the bank you've chosen has overlays, seasoning etc...).

Try a local bank, try a mortgage broker and whomever else you can try to get regular residential money. Once you've exhausted those avenues, then find a small balance commercial broker that will close it. It should take less than 30 days with no income verification, no seasoning of title if you just bought it and will more than likely have either a 30 year amortization with an ARM feature or a regular 30 year fixed. Beware, rates and points will not be close to Fannie or Freddie.

Happy investing

Stephanie

I appreciate all the responses!  From what I've read, I'm taking away.

  1. Though not easy, you can get a commercial property on a 4 plex.
  2. Unless you can't get a conventional mortgage, a commercial loan is not a good idea.  I was optimistic one could buy an under-performing 4 plex, turn it around, force appreciation, and pull out cash with a commercial refinance.  BRRCR (Buy, Rehab, Rent, Commercial Refinance, Repeat).  Doesn't sound like it's a good idea!
Originally posted by @Pat Jackson :

I appreciate all the responses!  From what I've read, I'm taking away.

  1. Though not easy, you can get a commercial property on a 4 plex.
  2. Unless you can't get a conventional mortgage, a commercial loan is not a good idea.  I was optimistic one could buy an under-performing 4 plex, turn it around, force appreciation, and pull out cash with a commercial refinance.  BRRCR (Buy, Rehab, Rent, Commercial Refinance, Repeat).  Doesn't sound like it's a good idea!

Was this a rhetorical Thread, or, have you "accidentally" ended up with a residential instead of a commercial building? I would think that largely, the same logistics still apply for both. Either, you bought a bargain for no more than 70-75% (all-in) what it'll actually be worth, or, you didn't!...

Haha, it's theoretical @Brent Coombs

There's a 4 plex I'm interested in, and I think appreciation can be forced like a larger property.  I haven't bought it though :)

Originally posted by @Pat Jackson :

Haha, it's theoretical @Brent Coombs

There's a 4 plex I'm interested in, and I think appreciation can be forced like a larger property.  I haven't bought it though :)

Just remember, its "appreciation can be forced" only up to the sold (ARV) comps around it, not by improving its rental return. (But of course, you still benefit from doing that). Cheers...

@pat jackson did you ever buy that fourplex? What did your debt service research reveal? I am curious because there is some varying advice in this thread. You absolutely can “treat” a fourplex as a commercial multifamily, repositioning and stabilizing, lowering expenses, increasing rents, etc, subsequently increasing NOI and value. Just know that you will run in to lenders and appraisers who will think it HAS to be treated as a residential property, but that is not the case. You can request an income approach appraisal (may cost you extra) in addition to a sales comparison approach, provide the lease agreements and P&L for the property, and see where the numbers fall. We have done it on numerous occasions. Having done both SFRs and small Multifamilies, I prefer the BRRRR method on multi’s because you have WAY more control over the aspects that drive the value. My two cents! Lets us know how the project went!

(253) 237-4331

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