Residential Loans vs Commercial Loans

[Kyle Neff]

Hello BP Community! I am considering multifamily properties from 3-10 units. I know anything from 2-4 units will require a residential loan and anything more than that will require commercial financing. Curious to hear opinions on:

1) Res vs Comm Loans and any caveats / gotchas I should consider?

2) Whether or not I should even be considering a Commercial MF for my 1st investment?

3) Whether I would qualify for a commercial loan considering my experience level?

4) Any other recommendations / advice.

For background -- I am looking to purchase a property between $150k-$350k and have enough for the 25%-30% down if it is required, although that would tie up a significant amount of my capital. Look forward to everyone's feedback!

[Kenneth Garrett]

@Kyle Neff

Commercial loans are much easier to secure then residential.  They don’t care if grandma gave you $25 for Christmas and you deposited in your bank account.  They only care for the most if the property cash flows. 

I agree with @John Warren once you get the first one under your belt you are good to go. Local small banks are the way to go. Much easier to work with. They will ask for LLC Articles, Operating Agreement, EIN number, 2-3 years of tax returns and make sure your debt service coverage ratio (DSCR) is at least 1.25. If your DSCR is 1.7 or better you may be able to get 80% LTV instead of 75%. You will still need an appraisal. Make sure your numbers included the correct ARV. I have completed numerous commercial loans. The extra cost is worth it.

Good Luck.