Using recourse loan for 8 unit??

Question

Is it really that bad to use a recourse loan for a medium residential investment property? I want to buy an 8-16 unit in a low income area with my dad as a credit partner (since he has excellent credit and can get the bank loan). Isn't it fine as long as it is cashflowing?

Bill Gulley · Answer

Dennis Tierney, my implication of them being nonexistant was for the OP in his situation, knowing that his father is needed as a credit partner and to this matter, I did not say they don't exist and I have had non-recourse loans as well. When you are in a position where you have sufficient assets and it is clear to a lender that repayment can be made from the estate or other sources, you can talk about a non-recourse loan, as I said, under certain circumstances and this isn't one of them.

Joel Owens · Answer

It's different if you have a track record with an existing lender versus a new person buying their first type of property for that asset class.

That's apples and oranges.

Non-recourse everything usually costs more to finance.If the deal is purchase right you do not need non-recourse.Back when they were financing anything with the boom then yes of course if you are only paying slightly more and can hand back the keys with any problems you would take it as a buyer.

Now they want all of these things (amount down,bad boy clauses,etc.) that make it a moot point.

Eric I wouldn't put your dad on the hook for this especially in a bad area.My father has been dead for years from a car accident.Your relationship being damaged is not worth any monetary gain.

If you were going to consider doing this I would choose a nicer area with less risk.

Dennis Tierney · Answer

Bill Gulley is not correct that nonrecourse loans are not available as I have 4 of them, however, they are not available without a very good relationship with a bank, a good sized loan and/or through an experienced mortgage broker.

Bill Gulley · Answer

Welcome to BP, Chris!

An asset lender may do that, trouble is, this is for a MF deal and they propbably want to keep it, which means long term financing, at least longer than most HM lenders are willing to go. then they get insituation and back in the same boat as they are now and if not successful with a refi, they lose it.  There are uses and situations where a non-recourse loans are used, but I don't see this being one.

:)

Chris Goulart · Answer

If you want to go with a hard money loan, there is the potential to get a non recourse loan, but it is going to cost much more than a bank loan, and the cost is likely to outweigh any benefits.

Making a loan non-recourse in your situation would remove much of the benefit that the banks would get of bringing your father on as a credit partner.  To make a comparison, to go with hard money and non-recourse you would likely be in the 10-12% rate range with 2-4 points, depending on the transaction.

When you get right down to it, the only negative to you and your father by signing for a full recourse loan is if something goes wrong with the loan/property and you default.  As long as the loan is current and your property is cash flowing for you it should be a moot point.

Bill Gulley · Answer

The ONLY way to have a non-recourse loan is to pull a fast one on a seller who carries back the loan, IMO. No lender is going to give non-recourse financing to anyone starting out and for those with as much experience as I have, it's still a big issue to get around, I don't even bother.....unless it was a non-profit deal.

As Ned points out, if you don't have confidence in the deal why should any lender? Need to belly up and assume the risk or don't play.
You're wasting your time attempting to get non-recourse financing IMO.

Ned Carey · Answer

Here is the way I look at it. If you are not so confident in the deal that you are willing to accept recourse financing then either:
1) It's not a good enough deal 
or 
2) You don't know enough about how to evaluate deals.

If you KNOW it is a good enough deal than why would you be concerned about recourse financing?

In addition to what  Dennis Tierney said it is unrealistic for someone with no experience in owning rental properties to get no recourse financing.

Good luck - Ned

Dennis Tierney · Answer

My experience is that you probably won't be able to get nonrecourse for a loan less than $500,000 and it is generally 60-66% LTV.

Eric C. · Answer

If I REALLY wanted to get a non-recourse loan, would it be to my advantage to seek a smaller (2-4 unit) or is it better to go bigger, like over a certain price?

Dennis Tierney · Answer

No, it is not bad and probably the only type of loan you could from a bank get anyway. To get a nonrecourse you have to have a pretty good relationship with a bank or utilize a motgage broker,but, for this size of property I doubt a motgage broker could find a company interested in nonrecourse.