Bit of a newbie here.. and I'm wondering if you could help me.
I'm looking at purchasing 3 units that the owner is selling all together. It's not exactly a triplex, so the personal mortgage lender would have to do them as three separate loans with 20% down each. As the closing costs will be higher doing them separately, do you think it would be better to have a commercial loan that is fixed for 5 years and with 25% down or stick to the three separate ones?
I don't have all the details at the moment, but thought I'd see if anyone with experience in this area could give me an idea of which might be the best route to take if you have e.
Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
4y
Has your lender told you they would have to do three separate loans? If they are on one tax parcel, I'd think you should be able to do one. If you can do a conventional loan, you'll get better rates, might get better terms on the commercial side, but it's really a matter of what works best for your situation, one isn't necessarily objectively better.
Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
4y
Has your lender told you they would have to do three separate loans? If they are on one tax parcel, I'd think you should be able to do one. If you can do a conventional loan, you'll get better rates, might get better terms on the commercial side, but it's really a matter of what works best for your situation, one isn't necessarily objectively better.
Investor · Syracuse, NY · Member since 2020 · 6 posts · 3 votes
4y
Hello Jennie, relatively new myself but my initial experience with each is:
1. Traditional has nice terms and long term security, much easier to finance individually if you ever think you might want to sell one of the properties for any reason because it's time consuming and expensive to separate it later. What I didn't like was the process, from application to closing it's a constant magnifying glass on your personal finances and spending which is a challenge in NYS with closing process experiencing significant delays.
2. Commercial is a heavy lift in the application stage but once the deal is underwritten, you're done, no last minute surprises because you bought a new living room set on a new credit card or made a college tuition payment :) Also, terms can be negotiated and very favorable (extend the years or reduce the down payment for a slightly higher rate and if the numbers still work...hooray!).
Rental Property Investor · Brandon, SD · Member since 2015 · 1k+ posts · 1k+ votes
4y
The commercial loan can combine all three as long as the bank is agreeable. You will only have one closing cost. Talk to a few other banks. 20% down commercial loans are common. The fixed rate for 5 years is also common. You will likely need to refinance at the end of the 5 year term.
Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
4y
@Jennie Seitz either go three separate loans or commercial with very clear collateral release provisions. Being splittable into 3 separate sales is a big advantage to you.
Ideally you got a discount because they wanted to sell quickly. Put in a little effort and you now have three sellable/refinanceBle assets instead of one. Focusing on the savings of closing costs may turn out to be penny wise and pound foolish.
Investor · Lake Worth, FL · Member since 2016 · 233 posts · 140 votes
4y
@Jennie Seitz 3 seperate mortgages with long term fixed rates will be cheaper in the short and long run. Closing costs might be higher with 3 loans; and i say might because commercial lenders charge points, and will require a phase 1 in addition to appraisal and other fees.
Rates are low at the moment but 30 year loan locks them in, and in 5 years rates will likely be higher and you'll have another set of closing costs. Not to mention that commercial loans are at a higher rate than residential.
Lender · Nat'l Commercial Mtg Lender - Round Rock, TX · Member since 2014 · 916 posts · 235 votes
4y
Hi Jennie, Many times if you have less than 5 units, it is cheaper closing cost running it through residential financing. The advantage of commercial financing is that you can put the property in an LLC.
Investor · MA · Member since 2021 · 11 posts · 5 votes
4y
Whether you do 20% down on each property or the whole package the amount down will be the same. The issue will be closing costs vs interest rate. Commercial loans have a higher base interest rate, come with prepayment penalties and usually go to floating rate after 5 years. Residential loans will often pay the taxes automatically so that’s one less thing to worry about. I have also found that residential loans close quicker (but that may just be our bank) For those reasons I prefer residential loans. You can have the bank compare the increased closing costs va the increased interest paid based upon how long you are planning on holding the loan.