Commercial 5-year ARM's - Please tell me there is a better way!

Grand Rapids, Michigan
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Commercial 5-year ARM's - Please tell me there is a better way!

Danny Daniels
Rental Property Investor · MI · Member since 2025 · 5 posts · 4 votes

My wife and I are 2.5 years into real estate investing in Michigan. 1 Rental, 1 fix and flip on which we just received our first offer!! Yeah!!, and 4 properties we purchased at a tax auction in late 2024. I handle the financing, and she handles the management.

I would really appreciate some direction and advice from this community.

Below are the details of our four tax auction purchased properties. We may have swung a little too big for our first at bat, but we believe in ourselves, have a great mentor, work with a honest builder, and are in a market lacking rental home supply.

However, why can I not find a bank or CU to loan me money on any loan product other than a 5-year ARM balloon with a 15 - 20 year amortization? In order for my numbers to work long term, and to make our dreams come true, I need a 15-year loan. I would accept an adjustable rate, or even a higher fixed rate, but this 5-year ARM stuff means I only pay interest for 5 years, then they want me to do it again and again. I believe that to become financially independent, I need to be done paying for these in 10-15 years.

Full details are below...by here is the elevator pitch...

4 properties with an expected ARV of 360K (Appraisals should be back in 2 weeks).

My all in cost for purchase, auction fees/taxes, and expected rehab is 320K.

I am seeking a loan of 240K, which is about 75% LTV of my total cost basis, and only 67% LT ARV.

Cash investment is 110K, and we should get 80K back from the loan with the intent to do it again next year at the auction.

I feel like this is a win-win for me and the bank, but, as I mentioned, they only want to give me a 5-year ARM. I feel like I am missing a puzzle piece. I am super new to this community and any help is much appreciated.

Rental Property Loan Request Package - March 2025
Street Address Bed/ Bath/ Sq Ft Purchase Price Auction Fee's & Taxes Estimated Reno Cost Cost Basis Loan Request ARV
Property 1 3/1
1008		 24,750.00 2,830.26 77,500.00 105,080.26 78,810.20 Approx. 100K
Property 2 2/1
1065		 16,000.00 2,369.40 37,500.00 55,869.40 41,902.05 Approx. 80K
Property 3 3/1
1189		 24,750.00 3,070.49 58,560.00 86,380.49 64,785.37 Approx. 100K
Property 4 2/1
793		 32,250.00 4,056.79 37,000.00 73,306.79 54,980.09 Approx. 80K
Loan Request Summary
Total Cost Basis: 320,636.94
Loan Request (75% LTV): 240,477.71
Total ARV: Approx.
360, 000
Annual Financial Projections
Rental Income Property Tax Insurance Maintenance / Vacancy Estimated Mortgage
(15 Fixed 8%)
17,076.00 -1,577.00 -498.00 -1,704.00 -27,600.00
13,404.00 -1,375.00 -601.00 -1,340.00
17,076.00 -1,150.00 -651.00 -1,704.00
13,404.00 -1,365.00 -531.00 -1,340.00
Financial Summary
Total Annual Income: 60,960.00
Total Annual Expenses: -41,436.00
Annual Profit: 19,524.00
Cash Investment: 110,076.94
COCROI: 17.74%
1Reply
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Most Popular Reply

Patrick Roberts
Lender · Charleston, SC · Member since 2019 · 1k+ posts · 1k+ votes
1y

This is the trap of low ARV properties that I was discussing in a different forum the other day. Financing is difficult to find when the loan amount is under $100k. There are some DSCR lenders who will fund loan amounts of $75k, but you'll likely need ARVs around $100k to make those work. If youre trying to get a portfolio (blanket) loan on these, that will likely be even harder.

What youre currently being offered are true commercial loans - they rarely have tenors longer than 5-7 years. Might be as good as it gets. Maybe some other lenders familiar with the Michigan area have some other ideas. 

Another thing to check into early on is title insurance - many title companies wont issue policies for properties that are obtained via tax foreclosure. Id ask about this up front before you pay for appraisals and everything else to find out a week before closing that they cant lend because of title issues. 

5Reply
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  • Patrick Roberts
    Lender · Charleston, SC · Member since 2019 · 1k+ posts · 1k+ votes
    1y

    This is the trap of low ARV properties that I was discussing in a different forum the other day. Financing is difficult to find when the loan amount is under $100k. There are some DSCR lenders who will fund loan amounts of $75k, but you'll likely need ARVs around $100k to make those work. If youre trying to get a portfolio (blanket) loan on these, that will likely be even harder.

    What youre currently being offered are true commercial loans - they rarely have tenors longer than 5-7 years. Might be as good as it gets. Maybe some other lenders familiar with the Michigan area have some other ideas. 

    Another thing to check into early on is title insurance - many title companies wont issue policies for properties that are obtained via tax foreclosure. Id ask about this up front before you pay for appraisals and everything else to find out a week before closing that they cant lend because of title issues. 

    5Reply
    • Timothy Hero
      Lender · United States · Member since 2020 · 1k+ posts · 499 votes
      1y
      Quote from @Patrick Roberts:

      This is the trap of low ARV properties that I was discussing in a different forum the other day. Financing is difficult to find when the loan amount is under $100k. There are some DSCR lenders who will fund loan amounts of $75k, but you'll likely need ARVs around $100k to make those work. If youre trying to get a portfolio (blanket) loan on these, that will likely be even harder.

      What youre currently being offered are true commercial loans - they rarely have tenors longer than 5-7 years. Might be as good as it gets. Maybe some other lenders familiar with the Michigan area have some other ideas. 

      Another thing to check into early on is title insurance - many title companies wont issue policies for properties that are obtained via tax foreclosure. Id ask about this up front before you pay for appraisals and everything else to find out a week before closing that they cant lend because of title issues. 

      Nailed it. Harsh reality is, no money is made on loans under $100k in the real estate lending space, let alone properties with an ARV of $100k.

      The numbers may pencil out for you, as the investor, but from a lending perspective, it takes the same time, effort, and cost to underwrite a $60k loan as it does a $600k loan. Difference is the profit is 10x more for the lender if they focus on the $600k.
      3Reply
  • Danny Daniels
    OP
    Rental Property Investor · MI · Member since 2025 · 5 posts · 4 votes
    1y

    Thank you Patrick!

    1Reply
  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    1y

    OP.  This is standard practice.  Except your comment about interest only.   Should be P/I.

    Is their an interest ceiling on the extension at the end of 5 years.   Example 1.5% points above current rate or prime.
     
    Ask if you can do a 7 year term.  

    At the end of your 5 years you might extend a year early or several months early, even if you pay a higher interest rate for one year.  Don’t wait till near term.      


    Di you have a term sheet you can share in here?  You can exclude the bank name.  

    0Reply
  • Andrew Zamboroski
    Lender · Member since 2021 · 495 posts · 130 votes
    1y
    Quote from @Danny Daniels:

    My wife and I are 2.5 years into real estate investing in Michigan. 1 Rental, 1 fix and flip on which we just received our first offer!! Yeah!!, and 4 properties we purchased at a tax auction in late 2024. I handle the financing, and she handles the management.

    I would really appreciate some direction and advice from this community.

    Below are the details of our four tax auction purchased properties. We may have swung a little too big for our first at bat, but we believe in ourselves, have a great mentor, work with a honest builder, and are in a market lacking rental home supply.

    However, why can I not find a bank or CU to loan me money on any loan product other than a 5-year ARM balloon with a 15 - 20 year amortization? In order for my numbers to work long term, and to make our dreams come true, I need a 15-year loan. I would accept an adjustable rate, or even a higher fixed rate, but this 5-year ARM stuff means I only pay interest for 5 years, then they want me to do it again and again. I believe that to become financially independent, I need to be done paying for these in 10-15 years.

    Full details are below...by here is the elevator pitch...

    4 properties with an expected ARV of 360K (Appraisals should be back in 2 weeks).

    My all in cost for purchase, auction fees/taxes, and expected rehab is 320K.

    I am seeking a loan of 240K, which is about 75% LTV of my total cost basis, and only 67% LT ARV.

    Cash investment is 110K, and we should get 80K back from the loan with the intent to do it again next year at the auction.

    I feel like this is a win-win for me and the bank, but, as I mentioned, they only want to give me a 5-year ARM. I feel like I am missing a puzzle piece. I am super new to this community and any help is much appreciated.

    Rental Property Loan Request Package - March 2025
    Street Address Bed/ Bath/ Sq Ft Purchase Price Auction Fee's & Taxes Estimated Reno Cost Cost Basis Loan Request ARV
    Property 1 3/1
    1008    		 24,750.00 2,830.26 77,500.00 105,080.26 78,810.20 Approx. 100K
    Property 2 2/1
    1065    		 16,000.00 2,369.40 37,500.00 55,869.40 41,902.05 Approx. 80K
    Property 3 3/1
    1189    		 24,750.00 3,070.49 58,560.00 86,380.49 64,785.37 Approx. 100K
    Property 4 2/1
    793    		 32,250.00 4,056.79 37,000.00 73,306.79 54,980.09 Approx. 80K
    Loan Request Summary
    Total Cost Basis: 320,636.94
    Loan Request (75% LTV): 240,477.71
    Total ARV: Approx.
    360, 000
    Annual Financial Projections
    Rental Income Property Tax Insurance Maintenance / Vacancy Estimated Mortgage
    (15 Fixed 8%)
    17,076.00 -1,577.00 -498.00 -1,704.00 -27,600.00
    13,404.00 -1,375.00 -601.00 -1,340.00
    17,076.00 -1,150.00 -651.00 -1,704.00
    13,404.00 -1,365.00 -531.00 -1,340.00
    Financial Summary
    Total Annual Income: 60,960.00
    Total Annual Expenses: -41,436.00
    Annual Profit: 19,524.00
    Cash Investment: 110,076.94
    COCROI: 17.74%
    Hey Danny! Which market are these in within MI? The toughest part here is the initial acquisition and rehab in my humble opinion. We do private loans in MI but would have a hard time with the figures on some of these, in addition to the heavy rehab on some (compared to acquisition cost). Once you’re done with renovations, we would totally be interested in a DSCR loan. We do have fixed options and can accommodate lower valued properties. Let’s connect some time to see if we can help on future projects. Congratulations on your success thus far!


    0Reply
  • Ko KashiwagiPro Member
    Lender · Los Angeles, CA · Member since 2022 · 967 posts · 445 votes
    1y

    Hi Danny,

    Are these Single Families? Local banks tend to do those 5 year ARMs but there are institutional programs that can do 30 year fixed even with those values sub 100k. Happy to discuss further

    310-848-9776
    0Reply
  • Kevin Jo
    Member since 2025 · 28 posts · 22 votes
    1y

    My opinion is these are not good investments. $19k potential profit on 4 houses if nothing goes wrong?? One multi family should net more or the same with less headaches. You have cash to get into something safer with better upside and better financing options which will help mitigate risk.

    0Reply
    • Timothy Hero
      Lender · United States · Member since 2020 · 1k+ posts · 499 votes
      1y
      Quote from @Kevin Jo:

      My opinion is these are not good investments. $19k potential profit on 4 houses if nothing goes wrong?? One multi family should net more or the same with less headaches. You have cash to get into something safer with better upside and better financing options which will help mitigate risk.

      Something always goes wrong in RE, lol. One hiccup and there goes that profit and it quickly becomes a "I hope I can break even on the deal".
      2Reply
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    1y
    Quote from @Danny Daniels:

    My wife and I are 2.5 years into real estate investing in Michigan. 1 Rental, 1 fix and flip on which we just received our first offer!! Yeah!!, and 4 properties we purchased at a tax auction in late 2024. I handle the financing, and she handles the management.

    I would really appreciate some direction and advice from this community.

    Below are the details of our four tax auction purchased properties. We may have swung a little too big for our first at bat, but we believe in ourselves, have a great mentor, work with a honest builder, and are in a market lacking rental home supply.

    However, why can I not find a bank or CU to loan me money on any loan product other than a 5-year ARM balloon with a 15 - 20 year amortization? In order for my numbers to work long term, and to make our dreams come true, I need a 15-year loan. I would accept an adjustable rate, or even a higher fixed rate, but this 5-year ARM stuff means I only pay interest for 5 years, then they want me to do it again and again. I believe that to become financially independent, I need to be done paying for these in 10-15 years.

    Full details are below...by here is the elevator pitch...

    4 properties with an expected ARV of 360K (Appraisals should be back in 2 weeks).

    My all in cost for purchase, auction fees/taxes, and expected rehab is 320K.

    I am seeking a loan of 240K, which is about 75% LTV of my total cost basis, and only 67% LT ARV.

    Cash investment is 110K, and we should get 80K back from the loan with the intent to do it again next year at the auction.

    I feel like this is a win-win for me and the bank, but, as I mentioned, they only want to give me a 5-year ARM. I feel like I am missing a puzzle piece. I am super new to this community and any help is much appreciated.

    Rental Property Loan Request Package - March 2025
    Street Address Bed/ Bath/ Sq Ft Purchase Price Auction Fee's & Taxes Estimated Reno Cost Cost Basis Loan Request ARV
    Property 1 3/1
    1008    		 24,750.00 2,830.26 77,500.00 105,080.26 78,810.20 Approx. 100K
    Property 2 2/1
    1065    		 16,000.00 2,369.40 37,500.00 55,869.40 41,902.05 Approx. 80K
    Property 3 3/1
    1189    		 24,750.00 3,070.49 58,560.00 86,380.49 64,785.37 Approx. 100K
    Property 4 2/1
    793    		 32,250.00 4,056.79 37,000.00 73,306.79 54,980.09 Approx. 80K
    Loan Request Summary
    Total Cost Basis: 320,636.94
    Loan Request (75% LTV): 240,477.71
    Total ARV: Approx.
    360, 000
    Annual Financial Projections
    Rental Income Property Tax Insurance Maintenance / Vacancy Estimated Mortgage
    (15 Fixed 8%)
    17,076.00 -1,577.00 -498.00 -1,704.00 -27,600.00
    13,404.00 -1,375.00 -601.00 -1,340.00
    17,076.00 -1,150.00 -651.00 -1,704.00
    13,404.00 -1,365.00 -531.00 -1,340.00
    Financial Summary
    Total Annual Income: 60,960.00
    Total Annual Expenses: -41,436.00
    Annual Profit: 19,524.00
    Cash Investment: 110,076.94
    COCROI: 17.74%

    My recommendation would be to sell all of the properties and buy properties that have an ARV of atleast $150k so you can get 30 year financing on them. As mentioned the issue with these is the property value. DSCR lenders will go as low as 75k for a loan but it must be a $100-$100k property depending on your credit.

    7e investments53 Reviews
    WebsiteView Page
    0Reply
  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    1y

    @Danny Daniels So many issues, where to begin?

    1) You may have overpaid for these, definitely Property 1.
    - Auction Fees & Taxes are irrelevant to rehab and loan numbers.

    2) How are YOU budgeting the rehabs?
    - Guessing you're letting everyone else determine the budgets?
    - EXAMPLE: Property 1 - $100k ARV x 80% = $80k - $24,750 buy = $55k for rehab. MAKE THIS NUMBER WORK!
    - Cut back on your renovation plans. Budget in this order:
    --- Health & Safety: to avoid personal injury lawsuits
    --- Governmnet required: city inspections & Section 8
    --- Property Preservation: foundations, roofs, windows, etc - except if you can band-aid them for 2-3 years.
    --- Marketing Impact: got to be able to attract a tenant! But it may only be a Class C tenant.
    --- Miscellaneous: anything you want to do that doesn't fit in above categories. Make SURE it adds value though and is NOT just a personal preference!

    3) You're overspending on rehabs!
    - Willing to bet you are rehabbing like you'll be living there, instead of rehabbing as rentals. 
    - Write this down, "MAINTAIN TO THE NEIGHBORHOOD!" Tolerence of 5%, at most 10% - otherwise you're either a slumlord or thorwing money away.

    4) You need a new contractor!
    - These are NOT Class A properties, so why are you hiring a Class A contractor? They will only do what they know and over-improve your properties.
    - These are probably Class C properties, so find a Class C contractor(s) - definitely NOT a Class D hack. You should invest a LOT of time to find 2-3 of these guys, but properly manage them. EVERY contractor will take advantage of you in some way, if you let them.

    5) Why didn't you properly research funding BEFORE you bought these?
    - For where you're at, you've found a pretty decent loan. What's the prepay penalty? You can always refi in the future.
    - Why do you have to do all 4 rehabs at once? If you pay cash to rehab one, you can then do a cashout refi on it much easier and use those funds for the next property. 
    - Look into a personal line of credit. Just be sure to ONLY use it for your properties and check with tax professional on what documentation you will need to be able to writeoff as business expense/interest.

    6) You WILL have an issue with title work!
    - In Michigan, you only get a tax deed when buying at county tax foreclsure auction, not a warranty deed.
    - Lenders will NOT recognize this deed.
    - You will want to find a title company willing to research (for a fee) if county met all state legal requirements on posting proper notices for their tax foreclosure. Otherwise, you will have to hire attorney to go through 4-6 month court process to Quiet Title (cost $1500+ each).
    - We have a good referral for a title company that does this for us!

    7) What kind of mentor do you have, that's missed educating you about all this stuff AHEAD of time?
    - How much have you paid them?

    DM us if you'd like better advice than what you've been getting!

    [email protected]248-209-6824
    Logical Property Management4.9459 Reviews
    WebsiteView Page
    0Reply
  • Danny Daniels
    OP
    Rental Property Investor · MI · Member since 2025 · 5 posts · 4 votes
    1y

    Thank you for the information. I will consider all the important points you made.

    0Reply
  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    1y

    @Danny Daniels or you could reach out to schedule a chat...

    [email protected]248-209-6824
    Logical Property Management4.9459 Reviews
    WebsiteView Page
    0Reply
  • Mike Klarman
    Specialist · NJ · Member since 2022 · 1k+ posts · 653 votes
    1y

    One of the issues is that you can't sell a lender. No such thing. You can't whip out a spreadsheet with numbers all broken down how everyone makes money and then say now see gimme the 75%. Boy, be nice if you need. First, you are dealing with a CU. CU is great for a straight 30yr DSCR with a decent cashflow. CU will give you great rate.

    You are asking for a very, very outside the box loan. Not a cookie cutter to say the least. And you say the ARV of the portfolio is 360k and total cost (not including any loan fees, holding costs, or rehab overages, is 320. 320/360 is an 88.88% project cost. Even if there was some portfolio bridge loan product, and the ARV was a combined 360k, the max loan amount would be about 70% of that max, you in no way would get full leverage from a HML. This is not a cookie cutter loan, maybe less. But so much can go wrong. But all the rehab money would be covered (in escrow) and whatever is left goes back to you. The margins are so, so tight.

    0Reply
  • Jill F.
    Investor · Akron, OH · Member since 2016 · 2k+ posts · 4k+ votes
    1y

    That's all we ever get on commercial portfolio loans. We only have one lender that will fully amortize the loans and generally they aren't the lowest rate. most have a balloon after 5 years or if we're luck we might get one reset and then a balloon

    0Reply
  • Deven Ziertman
    Member since 2025 · 77 posts · 15 votes
    1y

    Getting stuck with 5-year ARM balloon loans on small commercial deals is common, but there are alternatives:

    ✅ DSCR Loans with 30-Year Fixed Terms – Some non-QM lenders offer long-term DSCR loans with fixed rates instead of balloon structures.
    ✅ Portfolio or Blanket Loans – Bundling multiple properties into a single longer-term loan might open up better financing options.
    ✅ Credit Union & Local Bank Options – Some local lenders offer better flexibility than large commercial banks, especially if they understand your market.

    If traditional lenders keep pushing short-term ARMs, exploring alternative commercial or DSCR lenders could provide more stability!

    0Reply
  • Bernadeau C.Pro Member
    Rental Property Investor · Orlando, FL · Member since 2014 · 540 posts · 230 votes
    1y

    i can help with financing, if you still need it for this deal. send me a DM. 

    0Reply
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