Commercial Loan Estimates When Running Multifamily Numbers

8 Replies

Hello BP Family,

How do you all determine numbers for a commercial mortgage when estimating if a property if worth purchasing? Below are numbers I have (50% rule), the main concern is how to get accurate estimates (that sounded like an oxymoron) for the commercial mortgage. Is 30% down a standard down payment for commercial properties.


Listing Price: $395,000

Type: 6-Unit Multi-family

Location: Tennessee

Gross Monthly Rents: $600/unit

Annual NOI: $21,600

Down Payment: $118,500

Rehab: $50,000

Closing Costs: $10,000

Total Cash Investment: $178,500 

You will need to get a mortgage broker or a handful of bankers on your team, ones that will work with you.

The problem is there is no standard answer.   For loans that size, you are likely working with a bank rather than agency or bridge debt.  The terms can vary widely by bank.  Even on large loans, terms will vary widely from lender to lender.

Originally posted by @Greg Scott :

You will need to get a mortgage broker or a handful of bankers on your team, ones that will work with you.

The problem is there is no standard answer.   For loans that size, you are likely working with a bank rather than agency or bridge debt.  The terms can vary widely by bank.  Even on large loans, terms will vary widely from lender to lender.

 Thank you for the reply Greg. How do you know what is a good deal before consulting a lender? Is the logic to consult a lender first, then with that information determine what properties fit your numbers?

I'd start with a mortgage broker that can get loans from a number of bank sources.  Reach out regarding a specific property and they will give you feedback on the potential terms they see.  Then you can incorporate those terms in your underwriting and see if the deal still makes sense.   After you talk with them about a number of properties you will have a better sense for what properties the banks like best because usually they have the best terms.  Those with the best terms often are the best deals too.

Just call one of the commercial brokers who post here

seriously I just did this 2 days ago 

Had my answer in less than 5 mins. It’s a lot easier and less intimidating that I thought 

Also found out you can even get a commercial loan on a SFH. It's a higher down than a conventional non commercial loan

  They look at your FICO BUT not your income.   They look at the property expected rental income 

@Tom Saysithideth 35% is the typical down payment for commercial properties but multifamily has preferred downpayments and rates. Lately 20-25% down and rates around 3.5%. If you have a good relationship woth a lender or are well qualified both can be lower. A lot depends on the loan term (length) and the prepayment penalty which is common on commercial loans. As another poster replied, best to call a couple brokers and see what they have available.

While everyone has given you good advice I'd run from this deal. We all have our own way of doing things. My theology usually goes like this. 

$395,000/360=$1,097

$395,000 x.04=$15,800/12=$1,316

Total Output without insurance or expenses is $2,413 

Total income is $3,600 according to what you listed they are putting out the rest in whatever. 

Granted the payment would be less with more down. However, with these numbers there's no profit. It doesn't take it down enough from what I see to make it a win. You could always check out the difference on setting it up on a 15 year note. But I would still run with the repairs and next to no income and repairs.  In lieu of huge down payments that only protect one side I would suggest buying a US Treasury. They do some pretty unique things. Although, a lender doing this could be hard to find.  Although, the private side of a bank may help. 

The thing about the US Treasury is it insures the loan you take out against default. They can make them interest only loans. The treasury also helps avoid usual holding costs necessary to purchase a property. As your prepaying your principal up front at a discount with the treasury. So you literally end up with an interest only payment. The principal money usually put out to repay the created debt is satisficed upon maturity. Then you still have accumulated appreciation. Sometimes investors use both a letter of credit with the treasury to make a self liquidating loan. People talk about reverse mortgages being great. The treasury makes it better than a reverse mortgage on steroids income wise. Especially, with income producing properties. 

@Greg Scott , thank you for walking me through that process.

@Michael Plante , I took your advice. @Tarik Turner actually reached out and provided a quote for another property I was looking at underwriting.

@Ken Naim , spot on about the prepayment penalty, this is not something I normally need to worry about with conventional financing.

@Kathy Utiss , I appreciate the straightforward answer. It seems that commercial lending is not as limited as conventional mortgages. So, the answer is usually, "it depends". Thank you for giving your logic on how you would evaluate the deal.

@Timothy Hero , that is the big question. Listing states that it needs work.