Commercial Loan ?

[Eliott G.]

I recently purchased 2 side by side 4 plexes. They are zoned commercial even though they were purchased in 2 separate REO deals from the bank. I bought them for cash and will be rehabbing them over the next month. Once they have be completed and rented out, I will be looking to refinance the two properties as one commercial. The value of all 8 units should be around $200,000 - $250,000. I will be looking to obtain my first commercial financing loan. I am hoping to obtain a 70% LTV on this property.

Can anyone help me with some basic ideas about if banks would give me the financing, what rate and term would be good, how long the refinance will take and what average closing costs will be?

Some additional info:
8 Units should rent for $650 each
Assuming 7 of 8 units rented, monthly inflow = 4550
50% rule says my loan should be no more than $2275 per month.
Assumptions:
Min Loan = 70% of 200K = 140K ($979-1128 per month)
Max loan = 70% of 250K = 175K ($1223-1410 per month)
based on a 30-20 year term @7.5%
Management fee = 10% of rents ($445 per month)
RE Taxes are = $8400/yr ($700 per month)

My numbers all seem to work fine, however, i am more interested in the questions above about "Commercial Financing".

Thanks in advance

[Craig Grella]

If you're numbers are right you shouldn't have a problem getting the 70% you're looking for. With a 10% cap rate you're still looking at a value north of $200k. However, until you lease it up, it's not worth that because there is no income stream.

MOst commercial financiers will want you to first lease the building up before they loan on it, especially if it is vacant now.

It will be in your best interest to do that as well, as you'll get premium financing that way.

If you finance it while it's vacant the loan will not be as good, plus the lender will take out too many concessions. They'll use huge operating ratios, larger than normal vacancy ratios, a high per unit management fee, etc.

If you hold for a few months and lease it up you will be able to show real, historical numbers which they will use in their underwriting, rather than their best guess estimate. The appraiser will confirm those numbers with rent estoppels which will make the lender feel more comfortable about the income numbers.

The one drawback you'll have is the low loan amount. Anything under $250k will deter most commercial conventional lenders who have the lowest rates on smaller commercial.

You'll probably need to take it to a local community lender, credit union, or small savings and loan in your area.