Residential VS commercial loan for multiple fourplexes

[Elisa Zheng]

Hi everyone, I'm new to multifamily investing and my realtor sent me a few fourplexes on separate lots in the Chicago suburbs. I'm thinking about buying 4-6 of these fourplexes. I'm debating if I should get one commercial loan for all the buildings or separate residential loans for each? 

With a residential loan, I can get 30 year fixed, and better interest rate than a commercial loan (3-5 year fixed, and shorter amortization). However, a residential loan requires me to borrow personally, rather than using my LLC.

I like the better rate and terms with a residential loan, but I'm also worried about the liabilities that may come with it. Can someone please advise? Thank you so much!

[Mike Dymski]

You are hitting on the right pros and cons of either approach. My friend just purchased 3 adjacent quads on separate lots and choose commercial for the liability protection (LLC). He got 5 year fixed rate, 20 year amortization at 4.25%; so, he was fine with the loan terms and the cash flows. I have a 7 year fixed rate commercial loan, 25 year amortization, with no balloon (converts to a variable rate after 7 years). Incidentally, my loan is with a bank in Illinois. If you get above $1mm for many properties, you are looking at very favorable commercial terms and 30 year amortization in some cases.

Another pro for residential financing...provides flexibility if you ever want to sell the quads individually.

Not an easy decision.