what would be typical terms for a commercial loan on a 8 plex?

18 Replies

"8 Plex. Each Unit Is 1 Bd, 1ba That Rents For $650 A Month. Wood Floors Throughout. Utilities Are Separately Metered. Owner Furnishes A Washer And Dryer For The Use Of All The Tenants. Gated Parking Lot With 8 Spaces. New Wiring And Upgraded Plumbing Done In 2006. Looks Real Good Structurally. Owner Has Architectural Drawing To Convert Building Into Office Space."

asking price is $420,000

are loans available relatively long term with no balloon?

There are some loans available for long term without a balloon but are a bit harder to come by. The majority I've seen are amortized for 15-20 years, but I know a lender that can do a commercial loan starting amortized for 30 years with a competitive rate, but it was for a portfolio of SFR, not an apartment complex. If you want more info and the POC send me a private message.

I'm sure others will pitch in that have more experience in the commercial world than myself.

You need to find a local community bank to get the best terms.  Someone like Wells Fargo or B of A has a lot of stringent rules they need to follow, but are a pain to get anything done with.  The smaller guys are a little higher in interest rate but usually can get the deal one.  You will most often have a 20 or 25 year amortization, due in 10 years.  Your rate on something small like this would probably be 4.9-5.5%.  I would expect them to ask you for 25-30% down.

Typically I get 25 year loans with a 5 year adjust, right now I'm paying 5% interest. Max LTV is 70%.

Commercial loans have higher closing costs, and higher appraisal costs as well.

As said above go to a small bank, these are typically portfolio loans for them.

Welcome to BP.

My research has revealed that you will be to acquire a commercial loan with the following terms

75% LTV

15-20 Year Amortization

4.5% - 5.5% Interest Rate

5 Year Balloon.

I haven't found a lender yet who will offer me fixed rate for more than 5 years.

Hope it helps.

I just wrapped up two commercial loans for similar properties.

One is 80% LTV on 750k, 20 year amortization 6 year term, 4.25%

The other is 70% LTV on 1.4m, 30 year fully amortized, 4.375% fixed for 7 years, readjusts every year thereafter

I'd love to find a fixed rate loan. My uncle scored one for 15 years at 5% last year but the bank isn't doing those anymore. What a sweet loan. 

 

i found a lender that can get me 15 yr fixed, I'm meeting Monday. all banks we called is the balloon or 5yr ARM

Originally posted by @Matthew Saskin :

I just wrapped up two commercial loans for similar properties.

One is 80% LTV on 750k, 20 year amortization 6 year term, 4.25%

The other is 70% LTV on 1.4m, 30 year fully amortized, 4.375% fixed for 7 years, readjusts every year thereafter

 what do you mean 6 year term, then the balloon is due?

Exactly.  For any loan (although mostly applicable to commercial) there are really three factors to consider:

1 - Amortization period.  Over what period of time are the Principal & Interest periods calculated (eg; 15 year?  20 year?  30 year?)

2 - Loan term.  Just because a loan is a 30 year amortization does not mean that it will be a 30 year term.  Case in point, the loan I referenced above (20 year amortization/6 year term) means that payments are based on the 20 year amortization schedule, however the loan is "up" a 6 years, meaning either a balloon payment is due or I have to refinance before that. 

3 - Rate.  Interest rate - fixed or variable, and if variable, how soon and frequently does it change and what does it change based on?

For this particular loan, I neglected to mention that I pre-negotiated a guaranteed renewal/refinance at prevailing market rates, so basically, this loan can better be viewed as a 20 year amortization/TBD term/"variable rate" with the first adjustment (from the initial 4% to prevailing market rates)  occurring at the 6 year mark.

Make sense?

Originally posted by @Matthew Saskin :

Exactly.  For any loan (although mostly applicable to commercial) there are really three factors to consider:

1 - Amortization period.  Over what period of time are the Principal & Interest periods calculated (eg; 15 year?  20 year?  30 year?)

2 - Loan term.  Just because a loan is a 30 year amortization does not mean that it will be a 30 year term.  Case in point, the loan I referenced above (20 year amortization/6 year term) means that payments are based on the 20 year amortization schedule, however the loan is "up" a 6 years, meaning either a balloon payment is due or I have to refinance before that. 

3 - Rate.  Interest rate - fixed or variable, and if variable, how soon and frequently does it change and what does it change based on?

For this particular loan, I neglected to mention that I pre-negotiated a guaranteed renewal/refinance at prevailing market rates, so basically, this loan can better be viewed as a 20 year amortization/TBD term/"variable rate" with the first adjustment (from the initial 4% to prevailing market rates)  occurring at the 6 year mark.

Make sense?

 yes, thanks for breaking it down

Have you had difficulty refinancing and what do they usually require? Also, will they typically allow multiple sources for the down?

once you get into commercial you're almost always going to be looking at balloon term loans. It's just the nature of the business. 

FHA and some life insurance companies have self amortizing (no balloon) loans but not available on loans under $1m

Commercial loans between $100k and $2m are a tough market. The larger lenders don't want to do them. That leaves you with community banks and credit unions. 

Once you start looking at the larger loans you're best suited to use a mortgage banker. This is what I do. For example there are certain loan products that are only available through mortgage bankers, life insurance companies and the agencies (Fannie, Freddie , HUD). You also gain access to the CMBS market.

The standard "bank" product is a 5 year loan with a 20 year amortization. However you can get much better with a little shopping around or using a broker. Many banks will go 7-10 years or even longer. 25 year amortization are available, sometimes 30. 

I work on over $100,000,000 in financing per year. Happy to answer any specific questions you may have. 

@Matthew Conti most banks will want to refinance you when the term is up so long that you have been a good customer. The banking business is base on short term money, which is why they can't lock in for longer periods. When your loan comes due they're usually happy to Refinance. Many simply extent the loan or reset rate with out doing another closing. 

Down payment can come from any sources but you need to show some reserves and net worth. Experience with the product type helps as well. First Property? Banks might require a third party management company. 

What are the typical requirements for reserves and personal net worth etc?

The 8 family puts you into the commercial space. In the multifamily sector I routinely see loan terms of 7-10 years with amortization based on a 30 year schedule. Rates currently are often sub 4% maybe low 4% range. Banks will lend up to 75% LTV. More often than not the loans will be non-recourse with the Borrower being a LLC. As @Derek Carroll stated the loan size is small and lot of banks will not be interested.

This post has been removed.

@A.J. Chesney 

The multifamily space is really hot right now, but you can still get great rates from local community banks or even the larger banks.

I would say typically right now:

Term: 5,7,10

Amortization: 20,25,30

Rate: 4.3-5% (Stable deal good occupancy)

I just closed on a 48 unit, 13 vacant apartments (6 down/7 light turns), got a 75% LTV, 5.25%, 6 year term, and 25 year amortization.

My 3 commercial loans are 15-20yr am, 5-yr call (they have the right to call it due but haven't) with 5yr interest rate adjusts, based on some NW lending index.   They are currently at 5%.    I also have to submit a personal financial statement and tax returns annually.

@Jordan Williamson the reserves on mine were 6 months' PI pmts on the specific building lent and a net worth of 2x appraised value, from what they said.  I submitted my personal financial statement and all they said was 'looks good'.  Who knows, right?  

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here