Rental Property Investor · San Jose, CA · Member since 2013 · 188 posts · 228 votes
I've got an opportunity to buy eight 4-plex buildings (all in the same development, but not right next to each-other) for ~$2.1M. I've talked to commercial lenders and they wont do it. Its time consuming and messy to do it with 8 conventional loans. Is there a middle space here? Are there lenders/loans that will cover multiple residential-multifamily buildings in the same development?
Investor and Commercial Real Estate Agent · New York City, NY · Member since 2013 · 109 posts · 67 votes
7y
1-4 units are still considered residential funding not commercial. Speak to residential lenders or ask the owner, if the property is mortgaged which company did he use to fund it. You can also use this "difficulty in funding scenario" to ask the seller -- if you can come up with enough down payment, will he consider taking back a mortgage on the properties (owner financing)? There a number of creative ways to approach this acquisition but you need to find out why the seller needs to sell so that you can structure the deal that works for the both of you.
Rental Property Investor · San Jose, CA · Member since 2013 · 188 posts · 228 votes
7y
@Jonathan Marcus 1-4 is residential yes, but if you have sufficient number of them all next to each-other (adjoining parcels) then you can get commercial paper against the package. These unfortunately are not adjacent, though they are in the same development.
@Jeremy Holcomb Portfolio loans are in the mid 6% range now...commercial is ~2% lower, which is why we went there first. The deal wont work at higher than ~5% (at least not for us).
@Brock Mogensen do you have any specific recommendations? I've called a dozen or so local banks with no luck.
Rental Property Investor · Somewhere · Member since 2019 · 104 posts · 48 votes
7y
@Ryan D., That’s a tough market when 2% can kill a deal like that. Make sure due diligence is really thorough. Because if there is any hidden surprises it could eat more than that 2%.
Real Estate Syndicator · Milwaukee, WI · Member since 2018 · 1k+ posts · 907 votes
7y
@Ryan D. I'm located in Wisconsin and don't have any connections in CA, unfortunately. They most likely have stricter qualifiers in CA compared to WI so that may make my statement untrue.
Investor and Commercial Real Estate Agent · New York City, NY · Member since 2013 · 109 posts · 67 votes
7y
Which goes back to the problem you asked, because they're not close together a commercial lender does not want to touch it. This leaves you with a residential lender/portfolio lender. You may also want to try going to a Credit Union.
Rental Property Investor · West Bend, WI · Member since 2015 · 931 posts · 598 votes
7y
Fannie Mae has a Small balance program up to $5 Million, they also have a scattered site program so you can treat residntial like a multi family when locations are not all adjoining. you will need an experienced multifamily lender that understands these programs.
There must be another reason the Commercial lenders you spoke with wont touch it, either the bank is not interested in the type of asset, the deal isnt that good, or they dont like your situation. remember its not always you or the deal, every bank has a plan of what they want on their books, and it can change as well. I know lenders that dont want any residential real estate on the commercial side one time, but other times cant get enough of it. shop some more and you will find them.
I suggest having a good plan to present, be thorough at your meeting, Have 3 years taxes, a PFS, a layout of your past projects and outcomes (success and failures if any, it shows you are humble and how you deal with problems) and your plan for this asset, and BE CONSERVATIVE, never puff the numbers, if you need to puff the numbers to make it look good, its not a deal worth doing!
@Jonathan Marcus Just because a property fits in "residential" doesnt mean you have to finance residential, most of my Single family and duplexes are on "commercial" notes because of my low balances and ease of doing the loan sometimes it just makes sense.
Rental Property Investor · Ithaca, NY · Member since 2015 · 1k+ posts · 1k+ votes
7y
@Ryan D.
Depending on the condition of the property you could go Hard money and refinance into a portfolio loan. If the buildings are in good shape and you can get them for a decent price then I’d skip the hard money.
@Ryan D., That’s a tough market when 2% can kill a deal like that. Make sure due diligence is really thorough. Because if there is any hidden surprises it could eat more than that 2%.
Jeremy, the loan is the better part of $2M, so 2% difference on the rate is a decent chunk of money.
I'm trying to avoid a portfolio loan for this exact reason, though yes, in general, the market has gotten Very competitive over the last 12 months. I used to be able to pickup 1 or 2 buildings a year, never any bidding wars, etc. Now I'm making multiple offers weekly and loosing out to buyers willing to bid cap rates down into the 5 range.