Arvada, CO · Member since 2014 · 52 posts · 30 votes
I've never purchased anything other than a SFH, and I'm currently eyeing a few deals on 20-30 unit apartment buildings, which puts me into the realm of commercial lending for the first time in my life. For this scenario, let's assume I'm talking about putting a 20-25% cash downpayment on a property that is 95% occupied, and currently making money.
How likely is it that I can find a lender who is willing to do a non-recourse loan on a property of this type?
If I do find a non-recourse lender, am I correct in assuming that these loans come with higher interest rates? If so, how much higher would a comparable non-recourse loan be to a recourse loan?
Obviously it's in my best interest to expose as few of my assets as possible to the loan on any given investment (even though I want to make money, rather than losing money), but it's obviously in the lender's best interest to protect their loan with as many assets as possible.
Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
9y
What are you guys talking about with this 30 or 40 or more % down to get non recourse? That's not true at all.
Freddie small balance program (1-5m type deals) does 75 or even 80% LTV. 10 year fixed. In the 4% range.
Source: I've done ~$20m of those loans
Investor and CPA · Arvada, CO · Member since 2015 · 2k+ posts · 3k+ votes
9y
Hi @Kevin H.! I feel like it's been soooo long since we've talked...
My experience with non-recourse lending is as follows.
I've only done it in Colorado. I think you're looking out of state, yes?
Interest rate was 1/2% higher than the same commercial loan
The bank would not do a non-recourse loan if there was any person available to give a personal guarantee. The loan I worked with was through a self directed IRA where there is no individual that can guarantee. But if one had existed, they would have insisted. If you're just investing through an LLC, many banks will insist that you personally guarantee and thus negate the whole concept of non-recourse. It just flips to a regular commercial loan at that point.
Other than that, it was really a no-fuss situation.
Investor · San Jose, CA · Member since 2017 · 343 posts · 102 votes
9y
@Kevin H. - Non recourse lending is available for properties buying through SDIRA , Usually max is upto 65% and many do only 50%. The interest rate is quite high but better than HML. PM me I should be able to look up one of the lender I connected while ago.
Rental Property Investor · Concord, CA · Member since 2016 · 499 posts · 219 votes
9y
@Kevin H.Usually the non-recourse loan that you are looking for starts at $3M (a bit less in some cases) and require experience and net worth of atleast the amount of loan.
The non-recourse loans that @Linda Weygant@Vivek Khoche talk about are for properties bought in SDIRA and you need more money down (usually 40%).
Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
9y
@Kevin H. I've never come across one for the "standard" 25% down. Some lenders won't even do them if you put 40% down but I don't think there's a hard and fast rule there. A lot of the time you're dealing with local/community/regional banks that keep these loans on their books so it's not unexpected that requirements of their lending committee vary. You could be better served trying to negotiation something like a 7 year fixed-rate term (instead of 5) or a 25 year amortization schedule (instead of 20). Odds are you'll find more flexibility there that the recourse provision. Others may, of course, have vastly different experiences than me.
Lender · Morrisville, NC · Member since 2015 · 610 posts · 131 votes
9y
@Kevin H. There are plenty of non-recourse options above $2M with very low rates. Below $2M rates rise and LTVs fall making it not very cost beneficial.
Attorney · Phoenix, AZ · Member since 2016 · 32 posts · 23 votes
9y
It's possible. I've seen 20% down on non-recourse loans. Life insurance companies will lend in commercial or multi family properties and they lend on-recourse. I'd look into life insurance companies as I've seen many clients use them over the years under non-recourse loan terms with "bad boy" carve outs.
Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
9y
Non recourse that I've got was actually cheaper. Low 4s. It was a Freddie product and a pain to get.
Most of my stuff is local bank. Recourse. And high 4s.
I'm against the grain on tons of BP issues but I don't care at all about recourse v non.
Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
9y
What are you guys talking about with this 30 or 40 or more % down to get non recourse? That's not true at all.
Freddie small balance program (1-5m type deals) does 75 or even 80% LTV. 10 year fixed. In the 4% range.
Source: I've done ~$20m of those loans
Lender · New Smyrna Beach, FL · Member since 2017 · 122 posts · 54 votes
9y
I was about the bring up the small-balance programs for Fannie Mae and Freddie Mac; looks like @Cody L. brought up one of them. Both Fannie and Freddie have small-balance multifamily programs for loans between $1M and $6M (up to $7.5M or down to $750k in certain circumstances), and they are generally in the low 4s, and can even be in the high 3s! There are other requirements for Fannie and Freddie as well and they are less flexible than a local bank, but a better deal if you qualify. I'm happy to share some more info over PM if you'd like to connect more on it @Kevin H.
Rental Property Investor · Brooklyn, NY · Member since 2014 · 722 posts · 1k+ votes
9y
@Kevin H. Every loan I have done has been non-recourse at 75% LTV. But these are bigger deals, the smallest of which was 54 units.
My mortgage broker recently told me that government agency debt is available for smaller deals and, in fact, the government is pushing this debt because it helps with the housing crisis for affordable housing. However, the issue with government agency debt is the 2-year experience requirement - you must have a history of at least two years managing multifamily property. However, you can overcome this by adding someone to your team who has the experience. You will also likely be required to have a professional third-party management company running the property.
You may want to look into CMBS, which is available to new investors, but requires a professional management company approved by the lender. This is what we used to get started. CMBS has great rates and amortization, but the downside is that compliance is onerous. Really onerous. But it may be the only way to get started, which was our case.
Whether you do government agency debt or private debt, you can get non-recourse for these deals, but it is subject to "bad-boy" carveouts, which essentially mean that if you commit fraud, the loan becomes full recourse. Since the bad-boy carveouts apply, the lenders will require that you (or your team, combined) have a net worth equal to or greater than the amount of the loan, with 10% in cash.
All debt will be subject to a debt service coverage ratio of 1.25x or better, so just "making money" may not be enough to get debt.
You may want to look into owner financing if a traditional lender is not interested. But i've never done that, so I am not the expert there.
Arvada, CO · Member since 2014 · 52 posts · 30 votes
9y
Thank you all for the detailed responses, I greatly appreciate the information. From what I'm seeing, it looks like the non-recourse loans are more common for larger deals, and for people with a proven history of owning these types of properties... that sounds like it could make it tough for me on this one, but I'll definitely look into some of the programs you guys mentioned!
I'm in a good financial position to make a move on some of these properties, but unfortunately I'm new to real estate investing (thus denying me the history that some lenders may want), I'm also not at the point where I'm eyeing multi-million dollar properties just yet (let's hope that can become a thing in the future)!
As I start to get my head around some of this information, I may reach out to those of you who have offered the help/resources on this subject, and I do appreciate the time you've already given me!
@Cody L.@Tim Milazzo What are some non recourse option for small multifamily less than 500k?
I don't know of any non recourse options less than $500k. not saying they don't exist, only that I've never looked into them. Hell, I never looked into non recourse at all as I don't care about recourse vs. not. The only reason I have the non recourse loans I have is I did a bunch of fannie refis and those loans just happen to be non recourse. I wouldn't have paid more to get them. They just happened to be ~4.5% for 10 years (at the time my banks were 4.75% for 5 years, but now my local banks are 4.25% for 5 years then 5 year floating after).
Why are you looking specifically for non recourse?
(Personally, if I were a lender, the more important it was that someone had non recourse, the more worried I'd be about giving it to them. That screams to me "I want to be able to walk away and leave you holding the bag")
@Cody L.@Tim Milazzo What are some non recourse option for small multifamily less than 500k?
I don't know of any non recourse options less than $500k. not saying they don't exist, only that I've never looked into them. Hell, I never looked into non recourse at all as I don't care about recourse vs. not. The only reason I have the non recourse loans I have is I did a bunch of fannie refis and those loans just happen to be non recourse. I wouldn't have paid more to get them. They just happened to be ~4.5% for 10 years (at the time my banks were 4.75% for 5 years, but now my local banks are 4.25% for 5 years then 5 year floating after).
Why are you looking specifically for non recourse?
(Personally, if I were a lender, the more important it was that someone had non recourse, the more worried I'd be about giving it to them. That screams to me "I want to be able to walk away and leave you holding the bag")
I was looking at a multi family for a solo k which has to be non recourse. But needed it long term and not hml.
Other than that, like you, I have no preference either.
Investor · Miami Beach, FL · Member since 2017 · 71 posts · 12 votes
7y
@Matt H. Can you comment on who was your lender for non recourse and what was the outstanding mortgage balance? What were the terms? Were there any prepayment penalties?
@Jonathan Twombly Can you comment on how you used CMBS to secure debt for your multifamily deals?
@Kevin H. What did you decide to do in the end with financing?
Curious if anyone here has experience obtaining non recourse financing in tier III markets and what was their experience?
@Matt H. Can you comment on who was your lender for non recourse and what was the outstanding mortgage balance? What were the terms? Were there any prepayment penalties?
@Jonathan Twombly Can you comment on how you used CMBS to secure debt for your multifamily deals?
@Kevin H. What did you decide to do in the end with financing?
Curious if anyone here has experience obtaining non recourse financing in tier III markets and what was their experience?
I am a commercial real estate lender and I focus on CMBS originations. 10 year term fixed rate non recourse deals with 25-30 year amort is what I lend on for multifamily, industrial, hotels, retail, self storage, manufactured housing, office, etc. Let me know if you have any questions on CMBS and feel free to use me as a resource, happy to help in any way I can.
Real Estate Broker · CA · Member since 2016 · 243 posts · 226 votes
7y
@Matthew Shay Lender was/is Chase CTL. 5 year fixed at 3.11%-4.20% is what we have for loans originated over the last 3 years. 5 year IO, 30 year final. Pre pay 5-4-3-2-1. Chase retention after 2 meaning they'll waive pre pay if you refi with them or trade with them. No cost. Loans 1M and up.
@Matt H. Can you comment on who was your lender for non recourse and what was the outstanding mortgage balance? What were the terms? Were there any prepayment penalties?
@Jonathan Twombly Can you comment on how you used CMBS to secure debt for your multifamily deals?
@Kevin H. What did you decide to do in the end with financing?
Curious if anyone here has experience obtaining non recourse financing in tier III markets and what was their experience?
I am a commercial real estate lender and I focus on CMBS originations. 10 year term fixed rate non recourse deals with 25-30 year amort is what I lend on for multifamily, industrial, hotels, retail, self storage, manufactured housing, office, etc. Let me know if you have any questions on CMBS and feel free to use me as a resource, happy to help in any way I can.
Lender · Irvine CA, United States · Member since 2019 · 58 posts · 35 votes
7y
Minimum loan amounts are typically $1.5-2MM. Though ideally we prefer atleast $3MM. We lend on stabilized products across the country even in secondary and tertiary markets. Thats the beauty of CMBS. Our balance sheet platform only lends on primary and top secondary markets. The way CMBS is structured, we are able to lend on tertiary markets. Our most recent CMBS transactions were in small markets like Nacogdoches, TX and Goose Creek, SC. CMBS allows borrowers in small markets to obtain non recourse financing.
@Matt H. Can you comment on who was your lender for non recourse and what was the outstanding mortgage balance? What were the terms? Were there any prepayment penalties?
@Jonathan Twombly Can you comment on how you used CMBS to secure debt for your multifamily deals?
@Kevin H. What did you decide to do in the end with financing?
Curious if anyone here has experience obtaining non recourse financing in tier III markets and what was their experience?
I am a commercial real estate lender and I focus on CMBS originations. 10 year term fixed rate non recourse deals with 25-30 year amort is what I lend on for multifamily, industrial, hotels, retail, self storage, manufactured housing, office, etc. Let me know if you have any questions on CMBS and feel free to use me as a resource, happy to help in any way I can.
Whats the minimum loan amount for your programs?
Minimum loan amounts are typically $1.5-2MM. Though ideally we prefer atleast $3MM. We lend on stabilized products across the country even in secondary and tertiary markets. Thats the beauty of CMBS. Our balance sheet platform only lends on primary and top secondary markets. The way CMBS is structured, we are able to lend on tertiary markets. Our most recent CMBS transactions were in small markets like Nacogdoches, TX and Goose Creek, SC. CMBS allows borrowers in small markets to obtain non recourse financing.