Need Advice on Financing a Residential 6 unit property (LOS ANGELES)

Los Angeles County, California
Commercial Real Estate Investing
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Need Advice on Financing a Residential 6 unit property (LOS ANGELES)

Henry Bagh
Member since 2023 · 19 posts · 10 votes

Hello, 

I'm looking to buy a residential 6 unit property (which would require a commercial loan). 

The purchase price is $1.8m, and I have $750k cash. 


What is the best way to go about this? Ive called around, and there is Fannie mae agency loans with competitive rates like 5.9%, with a 5/30 amort. The problem here is it takes 6-8 weeks to close, and in the LA competitive market, that is too long to be competitive with other bids. Another problem I have is the 3/2/1 prepayment penalty. 


My thought was I could purchase the property, break even, and refinance in a couple years when rates hopefully come down. 

I am okay with the 5/30 amort, because worst case scenario, if I don't see rates drop, I can just sell or refinance. 


A little background...I own a personal home with about $1.3m in equity, and I have about $750k cash. 

Can anyone give me any advice in which ROUTE to take to get a commercial loan? I'm looking to lock in a good rate, with possibly no prepayment penalties, and low origination fees. Am I in lala land or is this possible?

Thank you in advance!

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Bradley BuxtonBusiness Member
Real Estate Agent · NV · Member since 2023 · 1k+ posts · 716 votes
2y

@Henry Bagh

You can start with local lenders and local banks and even credit unions some have DSCR options. I have some resources that I use for my clients can help as well. I'll shoot you a PM. Reach out to @Kyle Hendricks he may also have some references. 

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  • Bradley BuxtonBusiness Member
    Real Estate Agent · NV · Member since 2023 · 1k+ posts · 716 votes
    2y

    @Henry Bagh

    You can start with local lenders and local banks and even credit unions some have DSCR options. I have some resources that I use for my clients can help as well. I'll shoot you a PM. Reach out to @Kyle Hendricks he may also have some references. 

    1Reply
  • Gino BarbaroPro Member
    Rental Property Investor · St Augustine, FL · Member since 2014 · 2k+ posts · 1k+ votes
    2y

    @Henry Bagh

    DM me and I will connect you with our mortgage broker. There are various routes you can go. Credit union, community bank, and as you mentioned, Agency. It's okay if it takes some time to close.

    You can make your due diligence period shorter. It's gonna take 30-45 days to secure financing for anyone, unless of course they're using all cash.

    3/2/1 prepay only works against you if you decide to refi in the next 24 months. 

    Gino

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  • Henry Bagh
    OP
    Member since 2023 · 19 posts · 10 votes
    2y

    @Bradley Buxton thanks!

    0Reply
  • Henry Bagh
    OP
    Member since 2023 · 19 posts · 10 votes
    2y

    @Gino Barbaro Just Dm'd you! Thank you!

    0Reply
  • Allan C.
    Rental Property Investor · Member since 2018 · 826 posts · 810 votes
    2y

    @Henry Bagh why does the 321 PPP bother you so much? If you’re so hung up on that then I don’t think you should be buying a commercial property.

    The agency debt will have good terms, and you'll meet the min $1M loan requirement. There are plenty of DSCR lenders on here who will chime in with their terms, and I've used some with success.

    I think your biggest barrier is finding an asset that will meet DSCR requirements in your target location without having 40-50% down. Do you plan to only make one acquisition or do you want more? Seems you will spend your liquidity on one property with the info you've shared.

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  • Henry Bagh
    OP
    Member since 2023 · 19 posts · 10 votes
    2y

    @Allan C.its not that the 321 bothers me as much as thinking about paying 5pts+ at the end of it all. 2-3 pts for the interim loan, and another 2-3 pts for the long term loan when rates drop. 

    I mean if its standard, and theres no way around it, then sure. 

    I plan to make more acquisitions, but at the moment, this one property would use up all my liquidity. 

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  • Robin SimonBusiness Member
    Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
    2y
    Quote from @Henry Bagh:

    Hello, 

    I'm looking to buy a residential 6 unit property (which would require a commercial loan). 

    The purchase price is $1.8m, and I have $750k cash. 


    What is the best way to go about this? Ive called around, and there is Fannie mae agency loans with competitive rates like 5.9%, with a 5/30 amort. The problem here is it takes 6-8 weeks to close, and in the LA competitive market, that is too long to be competitive with other bids. Another problem I have is the 3/2/1 prepayment penalty. 


    My thought was I could purchase the property, break even, and refinance in a couple years when rates hopefully come down. 

    I am okay with the 5/30 amort, because worst case scenario, if I don't see rates drop, I can just sell or refinance. 


    A little background...I own a personal home with about $1.3m in equity, and I have about $750k cash. 

    Can anyone give me any advice in which ROUTE to take to get a commercial loan? I'm looking to lock in a good rate, with possibly no prepayment penalties, and low origination fees. Am I in lala land or is this possible?

    Thank you in advance!


    What does the vacancy look like? Multifamily DSCR loans are certainly an option (will be high rate with zero prepayment penalty), but would likely require it to be fully leased or near it

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