BRRRR - Conventional loan vs. Commercial for multiple duplex(es)

2 Replies

Hi BP Folks,

I am in the process of purchasing our first investment property (thankful for this community/podcast!). We will borrow 70K for duplex + 20K renovations. I have been pre-qualified for both conventional and commercial loan. 

Commercial loan, I'm looking at Finance of Am: 1m max., with min loan amt of 50K at 12% for a renovation (Fix/Flip) package...then following the BRRR (not sure how long their seasoning period is...but I'll ask) we can do a refi at their 6.1 conventional rate.

Conventional loan: McGloan, 30 yr fixed rate, 4.8% (not bad)

Im concerned with interest rates going up that perhaps we should lock in that low 4.8% rate (conventional loan), and pay out of pocket for the renovations ourselves? OR is it better to take the Finance of Am commercial loan, so we can buy not only this small duplex, but other properties? (Do commercial loans allow you to use that same loan, or do we have to resubmit another application each time?) I heard on one of the podcasts that there's some sort of line of credit...not sure if this is for all commercial banks, and if so, maybe then it would probably be best for investors to go with the commercial loan? 

Thank you for your input! 

Conventional if you can. 

Is this pure investment or are you living in one side? It comes down to money(as always). If these are traditional investment loans you will need 20% for either one. If you have the money on top of that for rehab, go conventional to get the better interest rate. 

If you are living there you only have to put 5% for conventional so do that. 

Seems to me the only reason you should use the commercial lender at those rates are if the house will not qualify for a conventional loan (foundation, roof etc) or you have no extra money for the rehab. Ask the commercial lender if they will do interest only while you do the rehab. 6.1 is high but if you have no history and no credit, its actually not a bad rate. Once they go to 6.1 what are the terms? 15 year amortization with 5 year call?

Thanks @Peter M.

We aren't living on one side, the duplex is in Indianapolis where we will renovate both sides, we had to put 25% down since it's an investment, and we will rent...not sure if we can complete the last R (in BRRR, Refi because "Fed are raising interest rates signaling 2 more increases are coming 6/13)  so I locked it in just now! 

I wonder if others are concerned about mortgage rates increasing and hurrying? Here's an interesting article that states that just because Fed rates increase, mortgage rates will follow: https://www.forbes.com/sites/johnwake/2018/06/15/t...