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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