My first commercial loan - is this a good deal?
I'm pursuing the purchase of my first small apartment building (6-units), and I received a commercial loan commitment from the local branch of a mid-sized regional bank. The details of the loan are as follows:
- $250,000 purchase price
- 80% LTV (lessor of the purchase price or the appraisal)
- 20 year term
- 4.75% rate fixed for five years, adjusted at each 5 year anniversary to the current 5 year Libor Swap plus 300 basis points
- 0.5% origination fee
- Operating checking account maintained with lender
Does this sound like a decent loan? Is the 5-year adjustment typical? Should I try to negotiate the origination fee, or is it reasonable?
Thanks in advance for your input!
I can't add much value here other than telling you that all of the commercial lenders I've talked to have higher rates than 4.75% so that part of the deal sounds good. Not sure about the rest of the terms though.
For this size of a project...take the deal.
I would try and get longer amortization to improve cash flow. I️ bought a 6 unit this year and got 4.5%, 30’year amortization, 10 year term, 5 year fixed, 80% LTV fwiw.
Give Robert Jones @ First Oklahoma Bank a call.
@Jeff O'Neal Those are pretty good terms. I noticed this thread is 7 months old, did you end up closing on this?
@Tom S. No, I couldn't make the cash flow numbers work after receiving the income statement. Those broker pro formas always paint a pretty picture! I'm still working with the same lender, but we've had two rate hikes since then, so we're now up to 5.5% at the same terms. I'm hoping to land something soon to avoid the two other rate hikes that are scheduled for later this year.
@Jeff O'Neal yes, I hear you, rates are definitely creeping up. I just received notice today of a rate increase on a few of my commercial loans. Luckily they're about 12 years into a 20 year term, so I'm paying a good amount of principal at this point.
Good luck to you!
- Tom