Commercial property using SFH as collateral?

Question

I found a 10 unit that looks interesting and am about to start exploring financing options.  I have (2) SFH rentals that are paid off and would like to approach a commercial lender about doing a blanket using the SFH properties as collateral on the larger purchase.  Has anyone done something like this before?  Is it possible?  I have a bunch of 1-4 family properties financed with residential mortgages and this is my first foray into commercial.

The deal would look like this:

10 unit purchase price = $400,000

Closing costs on loan (this is a guess) = $10,000

Market value of my (2) SFH = $100,000

Ideally I'd want a $400,000 commercial mortgage, 20 year amort, I am assuming 7% interest.  When i run the numbers my DSCR would be 1.50.  Using the SFH as collateral my LTV would be 80% with $10k out of pocket to cover closing costs.  If the bank requires 75% LTV on a commercial i'd be fine coming to close with more out of pocket.

Thoughts?

Chris Winterhalter · Answer

@Jeremy D.

You can definitely cross collateralize your single families for the down payment on the multi-family.  You need to make sure the bank is interested in the single family properties and area where they are located.  Are they close to the 10 unit building?  Also you need to make sure you are prepared if the properties come back with low appraisals (from a financing standpoint).  Also from a local bank you should be able to get 4-4.75% right now on small multi-families.  If they are charging you 7% they are taking you to the bank (maybe not literally...is that a saying?).  Good luck!

Bill Gulley · Answer

This has been, can be and is done. Commercial lending is much different than residential.  In addition to looking at you individually the lender will be looking at the property, the income generated, the valuation and management. Your ability to manage the project will be considered.

As to collateral, a commercial lender can take anything that is of value and marketable. :)