Commercial Loans Vs Conventional Loans

7 Replies

I have 4 single family rentals finance in my company name with commercial loans on them. I would like to the pros and cons on financing them with a conventional instead of a commercial loan. 

@Patrick Rowe Pros are mainly the fixed 30 year interest rate for conventional.  There aren't a lot of cons with conventional loans really. The commercial loans will obviously have terms, which can be a pain. 

Why would you use commercial loans if you have single family rentals? Conventional 30-year term, 30-year mortgage offer some of the best terms that a retail investor can get. No need to complicate it by resorting to commercial loans with shorter term, higher interest rates and other onerous terms.

@Omar Khan I bought all the properties using a rehab loan from the bank using 20 year amortization 5year arm. The only concern  I have with conventional is I have to put them in my personal name and debt to income.

@Patrick Rowe Just get conventional financing as it is the best for you (provided you can qualify). I would suggest getting umbrella insurance. It is very cheap and should cover most, if not all, liabilities. 

Also, it is very easy to "pierce the corporate veil". Holding properties in a LLC/corporation is not always a magic solution.

Obviously, you should consult with your CPA and lawyer (trust me, pay the fee, it's worth it). But get some peace of mind by transferring these to the best financing at the best terms you can get (i.e. conventional).

@Patrick Rowe Great question. I'm in the midst of cashing out a paid off duplex and easily qualify for for a conventional loan. Since it is not my primary highest LTV I could get was 75% and since it is considered multi-family only 70%...I wanted 80%. Closing costs would also be higher with the conventional. Terms rounded for ease: duplex value $125k so 80% would give me 100k...conventional 30 year fixed 5.75 with $5000 closing costs. In house commercial with 1st Citizens-80% LTV with a max of 100k(which is where I wanted to be) 3,5 or 7 year call with 20 year amortization, closing costs $1000 all handled in house. A couple of pros to the commercial is ease of transaction and building a relationship. Close in 1 week vs 1.5 months. I chose the 7yr with a 5% rate. Payment is $150 more per month with the 20yr am vs the 30 year fixed. I thought 30 yr fixed rates were the holy grail and they were a year ago. Now it is the $20 trillion question will rates skyrocketed?