I'm looking at multifamily and apartment buildings and wondering at what point would a commercial loan be "accepted." What I mean is, when it's a commercial loan the bank is looking more at the property and income generated from that and a little less at the personal income because it's seen as a business.
For example, would a quadplex qualify as a commercial loan? Is there a certain number of apartments that would have to be on the property to be qualify as a commercial loan? 10? 20?
Developer · CA · Member since 2018 · 25 posts · 10 votes
6y
In conventional financing, generally five and above. Nevertheless, we have large properties, and even in that arena, if there is vacancy currently or potential vacancy in the future (value-add or COVID) they will begin to look at the whole picture, ie, you and your cash flows. In our case we're always having to sign a personal guarantee and they're reviewing our personal financials to assure we can make payment.
This changes a bit in the private money / bridge financing arena where they're more interested in your track record and the LTV, but get ready for 7%+ interest.
I'm looking at multifamily and apartment buildings and wondering at what point would a commercial loan be "accepted." What I mean is, when it's a commercial loan the bank is looking more at the property and income generated from that and a little less at the personal income because it's seen as a business.
For example, would a quadplex qualify as a commercial loan? Is there a certain number of apartments that would have to be on the property to be qualify as a commercial loan? 10? 20?
Thanks for any advice! -Sean
Commercial loans and properties are two different subjects. You can get commercial financing for residential properties like single family flips, rentals, new cosnstruction etc. Residential Properties 5 units and up are commercial. The smaller banks will always be looking at your experience and financials to qualify and guarantee the loans but if you fall short you can bring on partners. Larger loans look more at the property to qualify the income but still want to see experience, net worth and liquidity.
Attorney · Doylestown, PA · Member since 2015 · 103 posts · 65 votes
6y
@Greg Dickerson hit the nail on the head. You cant get residential financing for over 5 units - but you can get commercial type financing for just about anything - with underwriting limitations of course. Each lender looks/weighs different criteria differently - some place more weight on debt service, some on income, and some on appraised value. Your best best is to call around to lenders to see what they offer - each lender has their own "sweetspot" as to what they like to lend on, and what they do not.
Attorney · Dallas, TX · Member since 2016 · 5k+ posts · 2k+ votes
6y
According to federal guidelines, 1-4 units is residential. that said, you can get commercial loans on SFR. Every bank is going to have different local guidelines for non-recourse debt. Just underwrite and ask. I will say LTV is the strongest factor in non-recourse debt.