30-year term on commercial loan?

[Romulus Olariu]

Hey everyone, I'm new here and looking forward to connecting about real estate investing. My partner and I are in the process of buying a 12-unit multi-family building in the West Chicagoland area for $700,000. The financials are solid, fully-occupied, all paying, room for rent increases, easy to rent units close to Chicago CTA line. Gross rents at $8,600, net at $5,600+. I'm looking through my financing options, and trying to get the best combination of long amortization schedule, low rate, and low down payment (want to maximize cash flow early on). We'd specifically like a 30-year amort, and 80% LTV. I know these are harder to come by for commercial multi-family, but do any of you know if there are 30 year terms on this kind of loan? Thanks in advance.

[Joel Owens]

We need to be clear. Amortization schedules and the length of the loan term is different. I see talks of amortization  and loan term being mixed in.

30 year amortization is not that hard to get. Getting a 30 year loan term is VERY DIFFICULT and getting at 80% LTV is not realistic. If that is the premise to make the numbers work you might want to move on to another property.

That small of a loan size the availability of various loan products is limited. Lot's of local banks loan on that size but the most I have seen recently is 7 year term fixed at a 25 year amortization. Banks do not like holding the note fixed for a long loan term. They lose money when inflation rises and they have to pay more on savings to get deposits into the bank. Once you understand how banks work then it's easy to see why they do not like long term fixed loans.

Even if you found a 15 or 20 year fixed loan expect the rate to jump 75 to 100 basis points or more. For a lender to hang out the money for a longer period of time they want more of a yield for doing so. This will affect your cash on cash especially based off of what cap rate you buy with. A lower cap rate you will need a lower fixed rate to make any cash flow.

For larger properties there is long term fixed for 30 years but these loans take a very long time to get and have a ton of hurdles to get through.