Best loan for a $1 million multifamily property

12 Replies

I currently own several SFRs and small multi-family properties (duplexes, etc.). I'm looking at buying my first apartment building (small 10 to 20 units) for about a million dollars. This will be a long term buy and hold - probably held until my death (I'm about 40 years old). I'd prefer to have a fixed rate for a long term - 30-40 years with cash flow as my main objective.

I'd like some opinions about the best loan programs out there for this type of thing. Which program would you choose and why?

The property will be in California. C to C- area. Condition of property will be fair to good.

Maybe there  a couple of good discussion forums someone can refer to?

Thank you for the help!!

HUD will offer the longest fixed rate term. No income restrictions are required and the loans are non-recourse however the fees are expensive and the costs can be quite high. The scrutiny of property condition will be very heavy due to the length of the loan term, too.

I would recommend a Fannie or Freddie small balance loan. Can secure a 10-20+ year fixed rate, 30 year amortization, non-recourse, and the underwriting costs and timeline will be much less onerous.

Other than that you could leverage banks against each other in your area - could potentially get a 5 or 7 (maybe even 10 year) fixed from them, but likely to be full recourse and lower leverage. 

@Jeff Kennedy I got a non recourse loan from Fannie /Freddie lenders through Arbor. You need to fit in the box however meaning loan size of 1m or more, 90% occupied or more, and have Fannie Mae experience on a past loan.

Thank you @Lane Kawaoka . I appreciate the information. I will look into Arbor as an option. Do you have to report annually to Fannie/Freddie with performance information? Thanks again.

@Lane Kawaoka Thats the first i have heard about the past loan experience. Is that fannie requirement, and does it have to be commercial loan experience?

Thank you @Kyle Jean . I did read a little bit about the HUD loans. They sound expensive and difficult. I thought I read somewhere that Fannie Mae had a 30 year fixed product for apartment buildings over $750,000. Anyone else know if this product is available?

@Jeff Kennedy

Hi Jeff

If the loan is sub $1 million, it would be very difficult to get Freddie financing.  I would try to find a small and hungry community bank that likes the multifamily space. They are the easiest to work with and will be the most flexible.  With commercial financing, most community banks will offer either 5,7, or 10 year terms.

Gino

@Jeff Kennedy your easiest path would probably be a local bank. You will pay more points, but you can usually get a 7 or 10 year fixed recourse loan from a local lender. I am in the commercial multi family space, and although a $1M purchase price might sound like a lot for some investors, it really isn't a large loan for the commercial space. If you got it under contract for less than $1M, there are probably a lot of lenders that wouldn't even look at it (like Fannie/Freddie for example). 

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Yeah given a ticked box on all ends, either the HUD fha 223(f) with 85% LTV for 35 years fixed or Freddie Mac Small Balance 80% LTV for 10 years fixed 30 year amortization, both are non-recourse.

@Jeff Kennedy you have to do what ever they say. I would say likely yes if not even more

@Will G. we are scraping the surface with this stuff. And yes commercial... Yours SFHs don't help other than to make other laugh.

Originally posted by @Jeff Kennedy :

I currently own several SFRs and small multi-family properties (duplexes, etc.). I'm looking at buying my first apartment building (small 10 to 20 units) for about a million dollars. This will be a long term buy and hold - probably held until my death (I'm about 40 years old). I'd prefer to have a fixed rate for a long term - 30-40 years with cash flow as my main objective.

I'd like some opinions about the best loan programs out there for this type of thing. Which program would you choose and why?

The property will be in California. C to C- area. Condition of property will be fair to good.

Maybe there  a couple of good discussion forums someone can refer to?

Thank you for the help!!

From my east coast experience, if you look at the Fannie Mae Small Loan program they will consider the borrowers (principal membership interest) and the property in underwriting. If your purchase is 'local' then your SFR experience should be sufficient. Your ownership's (your entity's collective membership) personal net worth will need to match or exceed the loan value (national requirement) and the LLC holding the asset will need to be a special purpose entity for the asset without other holdings. Everything needs to fit in their 'box'. Your FNMA SLP broker can give you full details. I've dealt with Wells, but the other brokers (maybe CREFCOA?) in CA that you may talk to will likely have local/regional guidelines.

Moderators: Links and bank references are not a 'pitch' but based on my borrowing experience only, as a customer. I am not affiliated in any other way.

Jeff,

As most have mentioned the Fannie/Freddie program are your best term terms, the loan will have to be right around $1M. The biggest concern would be a first time commercial borrower on an acquisition. Certainty of obtaining a commitment and closing is not guaranteed. You could have $15k+ tied up in third parties and legal (not including GFDs) and end up getting shafted at the end (I’ve seen this happen). So then you run into two options, walk from the deal and potentially lose your deposit if the money has gone hard (hopefully your still within your financing contingency) or you go to hard money, pay the high costs associated with it and close.

In today’s market your going to find it hard to get a bank to do any term longer than 5 years. But you have the certainty of execution and know your going to close. You’ll have flex prepay so you could turn around and refi in 2-3 years, you’ll be subject to interest rate risk but will not be in a position where you have to close on an acquisition. You could also try your local CU, they can go a little longer than the banks and typically are cheaper to close.

Depending on the cap rate your paying and the condition/quality of the building there is one other option. Life insurance companies are more conservative lenders but may be an option in this scenario. Pricing right now is competitive with the Agencies or better and they offer fixed rates up to 30 years. Feel free to PM me to discuss any of these options further.

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