Commercial loan on 4 unit?

Question

Chris Mason · Answer

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.

Brent Coombs · Answer

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

Stephanie P. · Answer

@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

Andrew Syrios · Answer

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.

Brent Coombs · Answer

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 · Answer

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 :)

Brent Coombs · Answer

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!...

Pat Jackson · Answer

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

• Though not easy, you can get a commercial property on a 4 plex.
• 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!

Brent Coombs · Answer

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.

Commercial loan on 4 unit?

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