Bank financing proposal - your opinion

6 Replies

Hi all.  First time MF investor.  18 units, (6 duplex 2 tri), $810k purchase price, $120k cash down payment, cashflow after all expense and reserve and project note payment is $1600 per month.

Bank to finance $690k.  Offering 5 year fixed at 5.25%, years 6 through 10 float at WSJ prime plus 1.5%, Balloon end of year 10.  Recourse loan with personal guarantee.

Positive - they are letting me in at 15%, no prepayment penalty, i am a first timer with no self-history although have managed for others, i think i could sell it for 950k or so as is and get cashflow to 2500 per month in a year.  

Negative - prime plus 1.5% is much higher than what I am used to getting for clients.

Prime plus 1.5% might be a deal breaker in my mind.  Am I being unreasonable?

I think 5.25% is expected now since the 10-year Treasury jumped 50 basis points in just the last few months. I would see if you could pay a little extra to put a cap on the float in years 6-10.

Do they offer a 20 Year am. with a 5 year fixed rate and a balloon at the end of 5? Instead of a variable from 6-10?

@Chad Linn You think you still hold it in years 6-10? I know we can't predict how things might pane out a year or so ...  What creative income generating thing could you add on the property, to cover for the extra payment? 

Thank you all for you input.  I felt like just getting years 6 thru 10 in play, extending the balloon was good and settled at prime plus 1%.  That is on a 25 year amort.  Rates are going to rise, so we should all plan accordingly.

I would shop around if you can to try to find a bank that will lock in at 7-10 years. 

I ended up locking 5 years and years 6 thru 10 adjust with prime.  No prepay penalty. 

It occurred to me that since these are duplex properties I could refinance each into conventional mortgages.  That might be the best strategy.

That might also be a sell strategy if rates rise.

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