Investor · Lawrenceville, GA · Member since 2013 · 34 posts · 29 votes
Hello everyone,
I manage a 10 unit complex here in north Georgia. We just had a commercial appraisal come back at $850,000. We owe $518,000, but it's a balloon with 3 years left. We are trying to figure out how to move it over to a long term fixed. The bank we are with is too small and won't do the refi for us.
Investor · Newnan, GA · Member since 2013 · 86 posts · 33 votes
11y
A commercial lender is probably going to give you a 7 to 10 year term with a 20 to 25 year amortization schedules. That rates will be a 1 or 2 points higher than residential mortgages. I'd look for a bank that's a portfolio lender, meaning they keep some loans in house.
Equally important is the preparing the loan package. Make sure you've got good records: 24 month of rent rolls, maintenance schedules etc.
Real Estate Investor · Framingham, MA · Member since 2014 · 44 posts · 21 votes
11y
Not to be obvious or a troll... but find a new bigger bank? >.> There must be a bank out there willing to refinance a property in which you owe just over 50% of the appraised value on...
Investor · Lawrenceville, GA · Member since 2013 · 34 posts · 29 votes
11y
@Andrew Auger Ha! I appreciate the straight forwardness. Maybe I didn't ask this the right way. I do know it's absolutely possible, I guess my question is what kind of product to go for, should I keep all the equity in the deal, should I pull some equity out, etc...
Investor · Newnan, GA · Member since 2013 · 86 posts · 33 votes
11y
A commercial lender is probably going to give you a 7 to 10 year term with a 20 to 25 year amortization schedules. That rates will be a 1 or 2 points higher than residential mortgages. I'd look for a bank that's a portfolio lender, meaning they keep some loans in house.
Equally important is the preparing the loan package. Make sure you've got good records: 24 month of rent rolls, maintenance schedules etc.
Investor · Bonaire, GA · Member since 2014 · 177 posts · 82 votes
11y
I live in middle GA and have called about half a dozen local lenders and most of the big banks. The bottom line is that all of the commercial products that have been offered to me ALL have a balloon payment of some type (most after 5 years). That said, they all affirmed that while the possibility exists that would not allow a refinance when the balloon payment came due, they would have no reason to do so as long as the note was in good standing. In other words, as long as I pay on time, they are going to let me refinance so that they can continue to make money off of me. It's in their best interests to allow me to refinance.
You need to call local community banks and ask about a commercial loan for your LLC. I keep a spreadsheet of who will lend to LLCs and here's who I'd recommend:
Servis1st Bank
CB&T
Sunmark
Colony Bank
Here's some more that I haven't gotten around to asking yet:
Heritage Bank of the South
American Pride
State Bank & Trust
MidSouth Federal CU
BB&T
Another option is to put the building in your personal name and get a conventional loan....but then you are opening yourself up to all kinds of personal liability (times 10 since there are 10 units).
You could also start asking about a regular business loan. Even sites like LendingClub have a business division. You probably will not like the rates but you may be able to get a longer term fixed rate product if you go for a straight up business loan. Be sure they understand you'll be paying off the mortgage with it, since there are sometimes rules about trading secured for unsecured debt.
Drop me a private message if you refinance with someone within your LLC....I will update my spreadsheet of lenders in GA!
Investor · Newnan, GA · Member since 2013 · 86 posts · 33 votes
11y
Regarding equity, if you've got another investment paying more than the interest on the loan, I'd take out as much equity as the bank will allow, leaving you a 20-25% cushion.
Investor · Hudson County, NJ · Member since 2015 · 15 posts · 12 votes
11y
If you are looking to pull money out, it may be difficult to get much more than 70% LTV, which would only generate about $80,000 for you. Commercial loans will always have a balloon, most commonly 5 or 10 years. With low rates, definitely try to find a 10 year balloon so you can benefit the longest. If the property cash flows well enough, I usually try to go with 15 or 20 year amortization as well rather than dragging it out to 25 years since you'd be paying most interest anyways. Of course, different folks have different strategies.
Rental Property Investor · Mineola, NY · Member since 2014 · 838 posts · 212 votes
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@Account Closed I would get on the phone with as many banks as you can and find the right lender. You should be able to get a pretty good rate and term right now for some long term debt. Keeping equity in the deal is a personal choice, but if you can pull out some equity and buy another property it might be a great option to scale up.
Real Estate Broker · St. Louis, MO · Member since 2014 · 206 posts · 194 votes
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Regarding equity, I would probably advise against pulling any out but that is simply my risk profile and yours may be different. Depending on the quality of the asset and your personal balance sheet, you may have a hard time finding a bank that would allow that.
Regarding moving over to a "long term fixed," there is really no such thing in commercial. The posts above are correct.... Most loans are going to be 5 yr (most common) to 7 yr (rare) balloons with 20 - 25 amortizations. A 10 year balloon would be ultra rare unless (a) you have a rock star relationship, and balance sheet with your bank or (b) you can broker the loan into a CMBS product (this won't happen in the sub $1M category).
If it makes sense to refinance now into another 5 year then by all means do it. Just look out for closing costs and prepayment penalties (common on commercial loans).
Investor · Atlanta, GA · Member since 2014 · 172 posts · 64 votes
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Harrison,
I am very interested in multifamily and have done a fair amount of research since I am going to look for something very soon. One thing I looked at was a commercial FHA loan. I didn't know these existed! The qualifying and overall process seems a bit cumbersome, but since you mentioned long term financing, it may be a good fit for you.
I know you need to have experience, reserves and good financial statements for starters. The building also needs to be in pretty good shape. It doesn't fund repairs, rehabs, etc... The upside is you get a fixed rate around 4% for 30 years (the last time I checked). It may be worth looking into.
At first, my strategy will be to find mostly occupied 10-24 apartment buildings and rehab them 2 at a time with a higher interest loan. Then I will start the FHA Commercial Loan process so when the building is finished, I'll be able to refinance for a low fixed rate.
Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
11y
From the perspective north of the 49th, where 3 - 5yr mortgage terms are the norm, having a mortgage come due in 3-years is really no big deal.
If you are paying all your bills and running the business well, then 8-12 months out from the end of term, start shopping your mortgage around to both your existing and other lenders.
If you prevent them with a well run, low risk operation to underwrite, you should have no problem placing a mortgage and will likely have lenders vying for the business.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
11y
If you're really looking for something like 30 year fixed rate financing, you're wasting your time. Its not going to happen on any building larger than four units. With the right lender, you might get 10 or 15 year fixed. But balloons and/or ARMs are just part of the deal for these commercial buildings.
Mortgage Note Investor & Multi-Family Property Investor · San Diego, CA · Member since 2010 · 177 posts · 51 votes
11y
Hi Harrison,
Consider looking for private funds. This is the type of opportunity that works well for some private investors, including retirement plans (self-directed IRA).
It is possible that the existing lender will consider selling the Note. If that possibility exists, there are many private investors that would be willing to buy the note & modify the terms.
Investor · New York, NY · Member since 2008 · 187 posts · 36 votes
11y
I think the bank is not giving you a straight up answer. If you don't mind answering what is your current NOI? Monthly payment? What are the average cap rates in area? Your refi may be based on 65% LTV=$552K or 70%LTV=$595K. Neither would matter if your cash flow can't support it.
By the way lenders that will do longer terms will offer higher rates. I hope this isn't too vague.
Investor · Milford, CT · Member since 2015 · 200 posts · 69 votes
11y
I'm getting 25 year amortization notes with interest rate adjusts at 5 or 7 years, no balloon just a more or less adjustable rate mortgage.
Since you are asking for less than 70% LTV I don't see any issues with refinancing, you just need to find the right bank.
Back in 2008/9 a lot of guys with balloons due just ignored them and kept paying. The LTV on the properties didn't work for refinancing, and quite frankly their were no banks that would refi. Most of the balloons just came due and the banks ignored them as long as you kept paying. Remember at the end of the day the banks do not want the property back.
I know one investor who borrowed so much from a small bank that the bank couldn't foreclose on him because they would fail. They simply kept taking the payments for years until the market came back.
Professional · Jacksonville, FL · Member since 2015 · 397 posts · 34 votes
10y
Originally posted by @Account Closed:
Hello everyone,
I manage a 10 unit complex here in north Georgia. We just had a commercial appraisal come back at $850,000. We owe $518,000, but it's a balloon with 3 years left. We are trying to figure out how to move it over to a long term fixed. The bank we are with is too small and won't do the refi for us.
Any suggestions?
Thanks!
Any issues that would startle a lender or complicate the deal in terms of financials-- rental income, net income/cash flow, debt service coverage etc? And was the appraisal affected more by complex price increase or rent?
Lender · Fort Pierce, FL · Member since 2009 · 825 posts · 486 votes
10y
The best offer that I have seen lately is a 30 year loan with 30 year amortization with 8 years fixed. Rates in the 8s depending on credit score and other terms. Max 75% LTV so you could pull some equity out if desired.
Homeowner · Fairmont, WV · Member since 2014 · 95 posts · 19 votes
10y
My commercial loan from a local bank wasn't as large as the one being discussed here (mine was for $190k) but it was for purchasing a 9 unit bldg. It's a 20 year amortization, no balloon, the rate is 4.99% for the first couple years then it adjusts to something like the prime rate + 2% (I forget the interest details). So the good thing is I don't have to worry about a balloon payment. My lender is a small bank in the northern panhandle of WV called Main Street Bank. This was only my 2nd rental property with them and I don't have any other accounts with them. Maybe the principal amount of the OP's loan is the kicker here for causing balloon payments?