Hello everyone, I'm about to go under contract on an SFR that I'm 1031ing out of. I'm looking at purchasing something in the 3-8 unit range. Multiple SFRs so I'm comfortable with residential loans, but if I find something in the 5-8 unit space I've no frame of reference with which to analyze the numbers. Assuming previous SFRs but first time MFR, no issues with DTI/credit score/etc and 25% down, what kind of terms should I be expecting, broadly speaking? I'd prefer a fixed rate if it was offered at 15+ years.
Updated about 1 year ago
Forgot - price range $350-450K
Hey Simon, welcome (potentially) to the MF commercial space. Qualifying for commercial financing is actually easier, in my opinion, since the lender will be looking more toward the property itself to carry the debt service, as opposed to you as the individual.
The biggest difference you'll see with commercial products are in the terms. Typically they are amortized over 25 years, as opposed to the traditional 30 years with residential. Additionally, most commercial loans that I've seen and used have a shorter fixed term, i.e. 5 or 10 years. After that period the loan adjusts to whatever prevailing rates are. And just like in the residential space, the longer the fixed term, the more expensive the interest is (typically).
I've worked with US Bank a bunch and they've been pretty great to work with and aggressive on pricing.
I'm sure there are tons of webinars here on BP that talk all about how to run the numbers on a MF building. It's pretty similar to SFR, but obviously there are just some additional line items. Let me know if you need some more help!
@Simon Hernandez , for a 5-8 unit property to get the financing you need, consult with your local community savings and loans banks, if you know the loan balance will be under a million. To understand more of how to underwrite deals, BP does offer a calculator in the market place I'm aware of, but have never used it. We use MB software to understand how the project needs to be valued.
Originally posted by @Michael Albaum :
After that period the loan adjusts to whatever prevailing rates are.
Hi Michael, can you explain this a little more please? I’ve never had to do a commercial loan in the past. So after let’s say 5 years the bank renegotiates the new rate?
Do people feel the banks try to offer an unfavorable rate since they know shopping to refinance the property may add costs or be time consuming?
@Simon Hernandez lenders will qualify the property for DCR, NOI, rent comps and LTV. Your fico will also be seen and put you somewhere on a scale.
Rates and Terms will be offered based on the lender. Not all lenders offer the same.
You will see the same terms and loans as a SFR. Rates will go from 5.75-8.75%.