What are financing requirements on a Commercial apartment 8-24unt

Commercial Real Estate Agent · East Providence, RI · Member since 2014 · 80 posts · 10 votes

What are the typical financing requirements for a mid size commercial multifamily. 8-24 units? I have heard many people talk about 25% down ect. But are there any other requirements on personal income. I know for single family residential approval is based upon personal debt to income ratios. So for a mid-size multi-family would they base it on down payment and income it produced? For example. If an investor had 150k to invest would that mean approval would be up to a $600k building?

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Joel Florek

Rental Property Investor · Michigan City, IN · Member since 2015 · 530 posts · 741 votes

10y

@Chris Lynch I am buying a 16 unit multifamily right now and am putting $10k my own cash, $15k from a personal loan, $110,000 owner financed, and $550,000 from the bank. Terms are 4.85% fixed for 20 years with 5 year balloon. Factors considered: personal guarantee, LTV in first position, NOI on the property, my credit score, personal financial statement, @James W. if the bank(decision makers) likes you as a person, and some banks wanted a life insurance policy tied back to them on case the bus gets to close to me.

Local banks will be able to do more for you then a national will when it comes to negotiating terms and working with your situation. Good luck and let me know if you have any questions!

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Jeff B.
Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
10y
Typical commercial lending is
- LTV 70-75%
- always an ARM, like 20 due in 10 (or even 5)
- property self-sufficient (aka DSCR 1.1 - 1.3 depending upon the lender)
- with an NOI that supports reserves 10%, vacancies of 12%
- 1/2 year prepaid taxes AND insurance (last parts of PITI)
Your personal credit should not be part of the qualification process.
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James W.
Investor, Entrepreneur · Greenville, WI · Member since 2015 · 138 posts · 27 votes
10y
^ I disagree due to my personal experience.
My lenders give me 80% LTV almost regardless of the property, based on my personal credit, income, and guarantee. I've never heard any of my lenders mention anything more than 1 month up front reserve for the tax escrow.
I don't think there is a "typical" scenario - every lender is different.
Here's some advice -
Getting to know someone in the right places makes a huge difference. If the President or VP of Lending is on a local committee (Civics, LIONS, Rotary, etc), join the club. Volunteer, work side by side with that person, have beers with them, etc. I've been leaning towards my smaller local Credit Unions as opposed to the Big Names, because they usually don't send deals to another city or state for underwriting.
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Jeff B.
Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
10y
Originally posted by @James W.:

^ I disagree due to my personal experience.
My lenders give me 80% LTV almost regardless of the property, based on my personal credit, income, and guarantee. I've never heard any of my lenders mention anything more than 1 month up front reserve for the tax escrow.
Are we comparing apples to apples; MFU 5+ commercial loans?
Would easily agree every lender can be different, but underwriting is more strict on commercial loans and my loan was non-recourse personally and w/o personal credit requirements - - which I question the apples :)
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James W.
Investor, Entrepreneur · Greenville, WI · Member since 2015 · 138 posts · 27 votes
10y
Yep, I'd say apples to apples: my last loan was an 8 unit, done as a commercial loan. I currently have about 12 other commercial loans spread over 3 different lenders, and none required a 1/2 year prepaid taxes.
My point would really be simply that what you experienced isn't a federal requirement, so it shouldn't be stated as "universal fact".
Just so we're clear, I wasn't attacking you personally :) Just saying that lender requirements may vary.
Cheers bud :)
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James W.
Investor, Entrepreneur · Greenville, WI · Member since 2015 · 138 posts · 27 votes
10y
All of my loans are like you stated in one aspect at least - amortized over 15-20, due in 3-5 years.
Some are variable, some are fixed... just depends on how I was feeling on the day I signed the papers lol!
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Brian Coleman
Investor · Baltimore, MD · Member since 2015 · 14 posts · 2 votes
10y
My 14 unit was 80% LTV with a personal guarantee. DSCR was 1.15. Credit score needed to be at least 650. This was a local bank in Baltimore: 1st Mariner Bank.
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JJ Harris
Rental Property Investor · Gulfport, MS · Member since 2015 · 34 posts · 17 votes
10y
In Mississippi, I'm getting 5 yr. terms with 10 to 15 year amortization for properties with strong financials, meaning debt coverage. These loans require a personal guarantee, so my credit and Debt to income are significant factors. I'm building relationships with small local banks instead of big lenders. 3 MF deals within 18 months with similar terms. Good luck on your purchase.
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Account Closed
Lender · Charlottesville, VA · Member since 2013 · 126 posts · 28 votes
10y
I am a multifamily mortgage broker. We can get 80%, sometimes 85% ( with mezzanine debt). 20 yr amortization, 5-7 yr term. Fannie Mae, FHA, private and hard money. DSC usually 1.15.
Give me a call.
Richard
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Joel Florek
Rental Property Investor · Michigan City, IN · Member since 2015 · 530 posts · 741 votes
10y
@Chris Lynch I am buying a 16 unit multifamily right now and am putting $10k my own cash, $15k from a personal loan, $110,000 owner financed, and $550,000 from the bank. Terms are 4.85% fixed for 20 years with 5 year balloon. Factors considered: personal guarantee, LTV in first position, NOI on the property, my credit score, personal financial statement, @James W. if the bank(decision makers) likes you as a person, and some banks wanted a life insurance policy tied back to them on case the bus gets to close to me.
Local banks will be able to do more for you then a national will when it comes to negotiating terms and working with your situation. Good luck and let me know if you have any questions!
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Joel OwensBusiness Member
Moderator
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
10y
It's all case by case basis. More so in the commercial space arena. Lenders will look at the asset and the borrower.
Some loans will not look at the borrower as much but LTV has to be lower. It's give and take as to if the borrower can live with a certain part of a loan and the lender can.
You get more options when you start getting into the commercial loans in the millions to tens of millions.
The small balance stuff is mostly banks and some conduit lenders.
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Mark Creason
Real Estate Lender and Broker · Dallas, TX · Member since 2013 · 966 posts · 500 votes
10y
We just came out with a small balance apartment loan program. Liquidity and net worth are important. Like to see 9 months reserves on apartment purchases. Debt coverage ratio is important. Typically have a minimum of 1.25. Looking for 90% occupancy or better. I recommend having a track record in apartments if you are going to buy apartments, but if you start small, you can grow the number of units.
Mark
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James W.
Investor, Entrepreneur · Greenville, WI · Member since 2015 · 138 posts · 27 votes
10y
Originally posted by @Joel Florek:

@Chris Lynch I am buying a 16 unit multifamily right now and am putting $10k my own cash, $15k from a personal loan, $110,000 owner financed, and $550,000 from the bank. Terms are 4.85% fixed for 20 years with 5 year balloon. Factors considered: personal guarantee, LTV in first position, NOI on the property, my credit score, personal financial statement, @James W. if the bank(decision makers) likes you as a person, and some banks wanted a life insurance policy tied back to them on case the bus gets to close to me.
Local banks will be able to do more for you then a national will when it comes to negotiating terms and working with your situation. Good luck and let me know if you have any questions!
Agreed on the decision maker point. And Voted because that is an awesome deal you just outlined!
Can you share more details - on the 15k personal loan and the 110k owner finance? I'd really appreciate it!
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Joel Florek
Rental Property Investor · Michigan City, IN · Member since 2015 · 530 posts · 741 votes
10y
@James W. So the deal is working where I will have a owner financed portion of $110 structured as a land contract with a wrap to allow me to get financing from the bank. This means I will hold equitable title, not legal title. I was asked to bring $25k to the bank and I only have $10k of my own cash so I have been approved for a $15k personal loan from Wells at 8% for 60 months which the primary lender on this property is aware I am doing. The $110k is 10 years at 2% with a 3 year balloon. The bank will roll in owner financed portion after 3 years which at that time I will have secured approximately 15% of the value of the property paying down principle and will then hold legal title. By the time my 5 year balloon comes due I will be at 20% to 25% equity ownership ensuring I will be in a comfortable position to refinance.
The property is a 16 unit with all tenants having a covered parking space, deck or porch overlooking the lake that the property sits on, and all 2bed units with 1 or 2 baths. Revenue was $116k last year with an NOI of $80k. Being more conservative I expect the property to provide $108k revenue and an NOI of $65k to $70k. All units are sub metered utilities which is very nice for me!
Currently under contract, have approvals for loans, and closing is scheduled for March 1.
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James W.
Investor, Entrepreneur · Greenville, WI · Member since 2015 · 138 posts · 27 votes
10y
Love it! And best of luck on it... that sounds like a fantastic deal for you, and a great way to get a solid property under your belt.
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William Pickett
Homeowner · Pulaski, TN · Member since 2013 · 30 posts · 2 votes
10y
May be asking too much but around what would this cashflow per month on the 16 unit. Im really digging in the multi family and researching as much as possible right now.!! thanks!
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Nick Stoddard
Investor · Overland Park, KS · Member since 2015 · 50 posts · 13 votes
10y
awesome @Joel Florek. I just met with a vp of commercial lending today. 20 year amortization, five year balloon. I'm not interested in multi family right now but I still asked him about it. Although I have six figures cash, he said I needed more to step up to a 12 unit .
He did tell me he would do 6.5% for six months for a flip on single family!
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Roy N.Pro Member
Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
10y
@James W. @Joel Florek
It's all case-by-case as as @Joel Owens says. Up to your north all mortgages - residential and commercial - have amortizations and terms independent of one another and a 5-yr term is the norm on both sides of the wall.
We also tend to go with variable rate notes (like your ARMS, only more flexible) as it gives more freedom to prepay and change your payment. Last year we were approved for a 15(down)/10(vendor carry)/75(1st position) of 1.2M @2.7%, 30yr amortization, 5-yr term, but the deal unwound during diligence.
This year, I think we might be able to do a little better on the financing ... if we can find something worth buying.
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James W.
Investor, Entrepreneur · Greenville, WI · Member since 2015 · 138 posts · 27 votes
10y
Originally posted by @Nick Stoddard:

awesome @Joel Florek. I just met with a vp of commercial lending today. 20 year amortization, five year balloon. I'm not interested in multi family right now but I still asked him about it. Although I have six figures cash, he said I needed more to step up to a 12 unit .
He did tell me he would do 6.5% for six months for a flip on single family!
That sounds so backwards to me... unless your 12 unit is even or negative cash flow. If you have a 12 unit that is generating positive cash flow, and your bank is telling you they prefer to gamble on a flip... that's silly. Message me the details on your 12 unit, maybe I'll just finance it for you if the numbers are right.
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Nick Stoddard
Investor · Overland Park, KS · Member since 2015 · 50 posts · 13 votes
10y
@James W.the 12 unit is not currently for sale, it's just a property I have my eye on. The owner is a 75 year old investor with deferred maintenance. I went to see the commercial lender on a referral from a friend. I mainly wanted to talk long term financing and he said they don't do that for single family and I asked about terms on multi. I guess they don't just look at the cash flow only, they want a significant personal guarantee and 100k wasn't enough.They do a lot of construction loans for commercial. Then he offered six months at 6.5 for flips which is way better than hard money. I'm going to talk to another lender about single family buy and hold. It will be good to have several options
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James W.
Investor, Entrepreneur · Greenville, WI · Member since 2015 · 138 posts · 27 votes
10y
Gotcha, that makes more sense. Except the "deferred maintenance" part... but no matter, I think I understand your position better now.
6.5 for a flip is great if the terms are right and you actually flip... if the terms are less than right and there is any delay in selling for a profit, then you're in a different ballgame.
Good luck :)
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Hassan Muhammad
Indianapolis, IN · Member since 2014 · 100 posts · 18 votes
10y
Joel Florek how can I find deals like that?
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Joel Florek
Rental Property Investor · Michigan City, IN · Member since 2015 · 530 posts · 741 votes
10y
@Hassan Muhammad Talk to everyone about what you do and exactly what you are looking for. Figure out who owns the buildings you are interested and make an introduction. Everything is always for sale, given the owners can get a compelling offer. In this case the owners wanted to retire, but they were not willing to drop their price enough for a buyer who would put $150k of their own cash down on the deal. I was willing to pay a premium given the financing arrangement of getting owner financed money at 2%. It was an interesting negotiation process that got me to that point, but I followed the PB podcast tip that talked about never making an offer and always phrasing your responses to have the owner make you an offer.
Originally the owners didn't want to do any owner financing. I went through a number of investors who I was looking to partner with to close the deal, but ultimately those fell through. When the owners saw how hard I worked at trying to get something together they finally offered me a financing package that the bank I was working with was willing to do do. I ended up countering by giving a financing ceiling for the total $$ I could spend rather then dictating the terms I wanted. It resulted in a combination price reduction and rate reduction to meet my numbers so this way the owners felt like they were in charge of the negotiations the whole time.
Feel free to PM me if you want to talk through this deal more.
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Joel Florek
Rental Property Investor · Michigan City, IN · Member since 2015 · 530 posts · 741 votes
10y
@Nick Stoddard Great numbers for lending on a flip... I would be all over that money! The terms are actually getting better for my deal as the financing gets finalized. I refinanced my 4 unit to 4.75% on a 7 year balloon for 20 years which is great!
For the larger property I worked with local lenders, even had a secondary bank counter offer to try and win my business on the property over to them. Deal packets are super important I have found. The banks were all very happy with what I had put together for them. I was in a meeting with the bank president and talked through the property with him and he said of all the investors who have spoken to him about the deal I have clearly been the person who has done the most research and analysis of the property. Makes a big difference!
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Hassan Muhammad
Indianapolis, IN · Member since 2014 · 100 posts · 18 votes
10y
wow! Great! Thank you!
@Joel Florek
Is this your first deal?
When you first started investing did you have earned income?
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Joel Florek
Rental Property Investor · Michigan City, IN · Member since 2015 · 530 posts · 741 votes
10y
@Hassan Muhammad The 4 unit is my first property that I bought 7 months ago and the 16 unit that I am supposed to close on by the 1st of March is my second deal. I actually just graduated last May and began a full time job 2 weeks after I was under contract to buy the 4 unit. I have a very good day job which has allowed me to pay for renovations on the 4 unit(borrowed 100% on the purchase of the 4). I am house hacking that building so my tenants currently pay all my expenses. That being said, if I moved out I would cash flow $500 to $700 a month depending on the season from that one deal. I expect to earn $1000 a month conservatively from the 16 unit until my owner financed money and personal loan is refinanced in 3 years which will put me at $2000 a month from that property.
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