30-year term on commercial loan?

28 Replies

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.

@Romulus Olariu

I am not an expert but 30yr amort is hard to get on commercial.

Best I have gotten quoted on similar deals is 5 or 10 year term with 25yr amort with min 20% down. Rates in the middle to high 4"s

Not saying it cant be done...I just haven't found a lender to do better on Commercial.  Share with us if you can find the 30yr lender on MF's

Best of luck.

Try to get an FHA loan. You can get a 35 year am.

Not high enough loan amount for FHA. Some lenders will offer 25-30 year am with 5, 10, 15, or 20 year terms. I am a banker/broker in the midwest. Contact me if you would like my help

Back in '97, I was lucky to get 30yr ARM. Today, it's much more like @Greg Adlington is relating.  I've found that a local commercial bank will deal better with you than any national bank.

Try some local credit unions.  A credit union local to Southern California here will do 30 year amortization on small multi-families.  

Greg can I get your contact info I am in Dubuque Iowa?

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.   

Try smaller banks that do commercial loans. I have 2 loans through this same small town bank. I just closed 2 weeks ago on a commercial property with a 20 year term, 5 yr ARM, with 20% down at 4.75%. Not a 30 yr fixed, but I thought it was a great middle ground for a commercial property.

Unless you bought at a very high cap rate an ARM at 4.75% for 20 year amortization is not that great.

If it was fixed it wouldn't be too bad.

Hopefully you have  a ceiling annually and the total amount of the loan the rate can rise too. That higher interest rate climbing each year can eat people alive. Great for the bank but really crappy for the borrower.

Originally posted by @Steve L. :

Try some local credit unions.  A credit union local to Southern California here will do 30 year amortization on small multi-families.  

30yr amortization is common.   A 30-yr term, on the other hand, is not.

Roy, commercial in USA is typically 25 year amortization.  Residential is 30 year.  

Originally posted by @Steve L. :

Roy, commercial in USA is typically 25 year amortization.  Residential is 30 year.  

 Steve:

I understand that 25-yr may be more common (in certain areas), but 30-yr amortizations are available and not terribly scarce (in our experience).

That aside, the purpose of my prior quip was to emphasize that amortization and term are distinct.  You can have a 25-year or 30-year amortization with only a 5-year term.

Mortgages where term and amortization are the same are relatively uncommon - outside of U.S.A. mortgage financing.

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Why would you want a 30-year term anyway?   Even if you can get this your optimal sell (or refinance) year is FAR before year 30 on any decent project.  If you could find a term with that long of duration you'd likely trade off a ton in yield to the lender for the privilege. 

@Romulus Olariu is this a Fannie Mae product? If so beware of prepayment penalty and it take 3-6 months to set up. Although it's cool that your loan as assumable by your eventual buyer.

Originally posted by @Bryan Hancock :

Why would you want a 30-year term anyway?   Even if you can get this your optimal sell (or refinance) year is FAR before year 30 on any decent project.  If you could find a term with that long of duration you'd likely trade off a ton in yield to the lender for the privilege. 

I know I'm digging up an old thread here, but if someone could share some insight with me it would be much appreciated (I'm a relative newbie [just 1 SFR at the moment] aspiring to get into commercial RE as soon as possible).

Why is it assumed that one would refi after X number of years, instead of just letting the loan pay off over time if the idea is to hold long-term? If I were to buy an apartment complex with today's interest rates, and the rates keep creeping up over time (or at least never come back down to today's levels), why would I ever want to refi? Unless I wanted to leverage/cash-out the equity to buy something else.

@Sam T. Multifamily loan terms are typically 3,5,7, or 10 years long. However, the monthly payments are amortized over 25-30 years. This means they are calculated as if you were paying the loan back over 25-30 years, but the length of the borrowing period is actually only 3,5,7, or 10 years. Each time your loan term comes due you will need to refinance the property or you can sell it.

@Eddie LeGrand-Sawyer Can't you get a 20-25 year term on a commercial loan though? Or is that just so uncommon for one reason or another that most folks do 3-10 year terms and refi at the end of each one? I guess my question was more for if one had a 25 year term loan for instance. But if such a loan is like a unicorn, then I guess that answers my question.

@Romulus Olariu

In MA smaller banks have provided me 30 yr commercial terms. I actually closed on one two weeks ago that was a 31 year commercial loan- the first year was interest only while I completed the rehabs. The rate on this one is floating over treasury and can adjust once per 3 years (there is a max cap). With that being said it’s normally 10-15 year with a 25 yr amor. I didn’t get offered this right away but after several deals sticking with 1 or 2 lenders

@Romulus Olariu FredieMac has 30 y amortization but your loan amount is too small. That's the "gray area" of MF with loans below $1,000.000, the products are not great. However when you go above the 1 million mark, Freddie has a great program for 5-75 units, $1-7.5% million loan, 80% LTV, non-recourse

Originally posted by @Sam T. :
@Eddie LeGrand-Sawyer

Can't you get a 20-25 year term on a commercial loan though? Or is that just so uncommon for one reason or another that most folks do 3-10 year terms and refi at the end of each one? I guess my question was more for if one had a 25 year term loan for instance. But if such a loan is like a unicorn, then I guess that answers my question.

Terms from 20-25 years are available through SBA Commercial loans. However, multifamily properties are excluded from SBA financing. If you are buying a commercial/office property and intend to occupy 51% of the space, or buying a hotel, then SBA loans are an option to consider.

@Sam T.

30 yr term loans fixed for commercial properties are available but not from the traditinal sources whether that be banks, portfolio lenders, or commercial banks.

The 30 yr fixed is offered through alternative lenders.

An alternative lender is a private non-bank commercial lender.

This type of lender is usually a debt fund designed to create commercial mortgages for investment and commecial properties.

The tradtional lending and commercial world do not offer fixed 30 yr loans because of they can’t they are not designed to do it nor can their portfolio handle those loans.

Alternative lender terms:

80%LTV 30yrs fixed for purchase or cashout (12 months seasoning required for cashout)

75% LTV 30 yrs fixed for purchase and cashout with no seasoning required for cashouts

Originally posted by @Greg Adlington :

Not high enough loan amount for FHA. Some lenders will offer 25-30 year am with 5, 10, 15, or 20 year terms. I am a banker/broker in the midwest. Contact me if you would like my help

What are typically the minimum 4+ unitloan amounts for FHA?

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