Is it possible to refi after a interesr only loan?

8 Replies

Hey everyone, I’m a beginner investor but I believe in the go big or go home methodology to life. I have a 400+unit apartment building I have been contemplating about purchasing with a hard money loan. With purchase price at 25M. NOI at 1.8M. Was wondering if 1. I can have a 10M hard money loan interest only at 9% (900K per year) leaving me with 900K annually. For 3 years with a balloon payment. 2. Can I write a 15M note for 3 years and refi the 25M in 3 years to an amortizing loan with a bank. 3. How long do banks usually do multi family amortizing loans. Any feedback would be great! I do not want to flip the property. I just want to buy and hold! Thank you!

Why do you want a hard money loan???!

At that price, you could get a non-recourse commercial loan with an agreeable interest rate.  Many lenders will offer favorable terms as long as the property has a 1.25% debt coverage ratio.

@Malik Banks do you have substantial net worth or liquidity? (Millions of dollars) because to buy this apartment building (with no track record) will require at least 5 million downpayment. Usually this is the type of deal that is probably syndicated. To buy this with just yourself would require a lot of money for downpayment and some lenders will require your net worth be greater than the loan amount.

I’m not sure if what you described with hard money would be possible but traditionally they want you to put some money down which in this case would be 10-15 percent which would still be millions of dollars.

Where would you get the 15M note from? Most hard money lenders won’t want multiple mortgages and im unsure if you can get hard money for 3 years. Traditionally it’s a year or two at most.

@Malik Banks I appreciate your enthusiasm to "go big" but, in this case, going big requires millions of dollars and years of experience to do what you are trying to do. Start small, get some experience, and then think big.
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I am unfamiliar with a non-recourse loan. The HML would not require a down payment oe extreme credentials. It provides the opputunity to get a loan in place for the property. The cost is just a high interest rate. My plan was to get the hard money loan interest only for 3 years ( I found a lender that is applicable to these terms) for 10M. Then have the owner hold a note for 3 years. Then when I have my net worth up and build equity in the property I can refi with a bank for 25M and pay a much lower interest rate. What are the qualifications for a non-recourse loan?

Originally posted by @Cara Lonsdale :

Why do you want a hard money loan???!

At that price, you could get a non-recourse commercial loan with an agreeable interest rate.  Many lenders will offer favorable terms as long as the property has a 1.25% debt coverage ratio.

I do not have any net worth or liquidity. Is it possible to have a partner for that side of the deal? I have ran all the numbers and the cash flow is there, I even had a couple other people look at the deal to see if the value was there and they agreed. Is it possible to have a partner in the deal with that high amount of net income that can help me push the deal through?

Originally posted by @Caleb Heimsoth :

Malik Banks do you have substantial net worth or liquidity? (Millions of dollars) because to buy this apartment building (with no track record) will require at least 5 million downpayment. Usually this is the type of deal that is probably syndicated. To buy this with just yourself would require a lot of money for downpayment and some lenders will require your net worth be greater than the loan amount.

I’m not sure if what you described with hard money would be possible but traditionally they want you to put some money down which in this case would be 10-15 percent which would still be millions of dollars.

@Malik Banks yes I suppose it's possible if you have partners but the same criteria as mentioned before would stand. You'd need millions in a downpayment and even more in reserves, and net worth requirements unless your partners have REI experience.

So if the people you mention have those things then maybe it’s possible but still unlikely.

People mistake having money, or a deal, as having something of value in REI. Thats just not the case. Those things will allow you to prance around and showboat. They will allow you to get attention from novice and experienced investors and "investors". But experience CANNOT be substituted.

Now, you may find someone w/ money falling into a few deals, and making some profit or even a novice w/ some deals they can pawn off on another....but the reality is that lots of people with money and experience wouldn't want or need a newbie for anything more than the deal; and they can afford to buy them off. And someone w/ money and no experience will be no help in solving the multitude of problems that come with every project.

The bottom line is this; a "deal" is done by an abundance of info, gathered by several people, all verified by a professional and then a "risk / reward" assessment is made by a lender. A HUGE part of that is who is the one making this project a success, thus getting them back their money? If you have someone with enough cash, to throw at problems, then they may loan money simply based on knowing they won't lose, even though the project may be a success. Although...people with money typically won't invest in a project where they aren't experts and aren't working with an expert.


Focus on finding someone who knows things, not a mentor; but an individual who does what you want to do. 

*(DOING WHAT YOU WANT TO DO, NOT GIVING CLASSES OR SEMINARS ON HOW YOU CAN DO WHAT THEY DON'T)

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