In contract on 6 units in Spokane wa advice on lending

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In contract on 6 units in Spokane wa advice on lending

Adam Jones
Flipper/Rehabber · San Juan Capistrano, CA · Member since 2018 · 9 posts · 3 votes

This is my first post on this forum but I’ve been a long time listener and lurker.

I’m in contract on 2 tri-plex units being sold as 1 six unit. I’ve flipped 18 homes and purchased 2 other multi families with standard home loans. I want to learn how to get a commercial loan but I have never done it. What should I prepare for a commercial lender I have called 2 but no response from my local referrals. I will take any referrals and advice on the process thanks in advance.

Adam

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  • Jared RineBusiness Member
    Lender · Sacramento, CA · Member since 2009 · 1k+ posts · 277 votes
    7y

    @Adam Jones..can you provide any details?  It'd be easier to answer and/or give suggestions. Assumption is the 2 tri-plexes are on contiguous lots or the same lot, if they're being sold as a 6-unit.  Are all units rented?  What's purchase price?  Is this in CA?  PM if you want. I'd like to know more about this.  

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  • Stephanie P.Pro Member
    Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
    7y
    Originally posted by @Adam Jones:

    This is my first post on this forum but I’ve been a long time listener and lurker.

    I’m in contract on 2 tri-plex units being sold as 1 six unit. I’ve flipped 18 homes and purchased 2 other multi families with standard home loans. I want to learn how to get a commercial loan but I have never done it. What should I prepare for a commercial lender I have called 2 but no response from my local referrals. I will take any referrals and advice on the process thanks in advance.

    Adam

    Hey Adam

    Congratulations on your success

    You're going to need the operating income and expense information from the property for the last 2 years, leases and of course your personal tax returns for the last two years if you're going with a bank.  Your first stop should be with a local bank's commercial division. If you don't want to go that route, a portfolio lender would be your next stop.  That would keep you from having to provide your tax returns.

    Best of luck

    Stephanie

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  • Dan Gamache
    Lender · Boston, MA · Member since 2019 · 417 posts · 150 votes
    7y

    @Adam Jones Even though being sold as a package,do you know if the properties are seperate parcels. Makes a big difference on getting a loan on a 6 family vs 2 3family's. 

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  • Alex BekezaBusiness Member
    Lender · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
    7y

    @Adam Jones If all of these are on one parcel it will treated like a 5 + Unit property and underwritten commercially based on the DSCR (Debt Service Coverage Ratio). Basically they're going to look at your Gross Income Minus Expenses/Vacancy Factor Divided by your Proposed Debt Service and on 5 + Units that number will typically need to be 1.25 +.

    Many other DSCR based 1-4 unit programs will only require 1.0 or 1.15.

    The difficult part on appraising a property like this is finding comps.  An appraiser has to determine whether to use standard multifamily or some how piece together triplex/duplex/fourplex rates and then adjust for the uniqueness. 

    If these are on separate parcels you could likely get your contract split in 2 and have them priced out as 1-4 units and save some money on interest.  However, then you will also need multiple appraisals.  One plus side of having it split is the flexibility to easily sell one and not the other at some point.  

    I've dealt with this before.

    There's a lot to talk about when approaching these nuanced properties so feel free to keep the conversation and questions going.  

    Most important thing to prepare would be rent roll/operating expenses so a lender can run the numbers.  Deals like this may or may not require tax returns depending on your own scenario. 

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  • Tj Hines
    Specialist · Tampa, FL · Member since 2012 · 933 posts · 492 votes
    7y

    @Adam Jones, not sure if you would be able to qualify for a commercial loan because all 6 units are not combined under one roof, one plat, one property address. One property 5+ units yes you can find a commercial loan

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  • Adam Jones
    OP
    Flipper/Rehabber · San Juan Capistrano, CA · Member since 2018 · 9 posts · 3 votes
    7y

    Wow! This is amazing information I can’t tell you how much I really appreciate all of you taking the time out of your day to help me find different angles on this deal. so far hard to get a P&L from the existing owner they are flipping it but I’ve found a few ways I can increase the value with minimal work. 

    I’ve spoke with a commercial lender that said since the properties are adjacent to each other it shouldn’t be a problem. But @tj hines I like your idea of splitting it up for future possibilities.

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  • Adam Jones
    OP
    Flipper/Rehabber · San Juan Capistrano, CA · Member since 2018 · 9 posts · 3 votes
    7y

    Sorry @Alex Bekeza 🤪

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