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Multi-Family and Apartment Investing

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Alejandro Rivera
  • Real Estate Investor
  • Jacksonville, FL
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First Deal Financing - HELOC or Commercial Loan?

Alejandro Rivera
  • Real Estate Investor
  • Jacksonville, FL
Posted Sep 21 2017, 18:22

I have a contract on my first multifamily commercial deal. The property is a six unit 2 bedroom 1 bath apartment building. It is currently fully occupied (month-to-month). It currently rents for (average) $500/month per unit but there is room for improving the property. The plan is to redo floors, cabinets, paint and bathroom tile with the goal is to raise rents to $650/month per unit which I feel should be possible for this area.

I have talked to a portfolio lender and the terms they are able to offer are 6%, 15 year amortization and 5 year term with 30% down down payment.  

I also have the possibility of buying the property outright using a HELOC from my primary residence at a 4% interest rate. This would allow me to reduce the negative cash flow during the renovation period and while I re-tenant the building (I will not be renewing the current tenants contracts after the purchase to do a full renovation).

Then after the property is stabilized I can "refinance" the property or rather get a loan on the property that (hopefully) will have gained some appreciation and repay the HELOC.

I would be interested in knowing what more seasoned investors would recommend in this case. Since I have not done this in the past, one question I'd have is how easy/hard would be to get that loan 12-18 months from now on the renovated property and whether the terms of that loan would be more favorable for a property that I already own (vs. now that I am trying to buy).

Any insights are greatly appreciated.

Alejandro

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