Loan for a 6 Family Rental Property? 15 year at 5.25%?

6 Replies

Hi, I'm currently under contract to purchase my first rental property,  a 6 family in Asbury Park, NJ and I'm trying to secure a loan.  Although I've looked (and made lots of offers), I didn't realize that it was a whole different ball game trying to secure a loan for a multi-family vs when I bought a condo as my primary residence.

I was hoping for feedback on the terms below and if they seem reasonable?   High level, it's a 15 year at 5.25% and I'm paying a point origination fee but the full loan details are below.  It's currently fully rented at $9,007 per month ($108k per year).  Taxes are around $13k.  The owner estimated the costs, utilities, maintenance, and repairs to be approximately $35k per year as he pays all the utilities for the tenants.

@Alex Staunton

A quick analysis:

Monthly Expenses

Debt +Taxes+Insurance+Other Expenses ($4,800+1,100+200+3,000)=9,100

Total Monthly Revenue = 9,000

You still have not included property management (if we assume a 10%) you are looking at about 10k in expenses and 9k in revenue.  Based on this information alone, it does not look like a prudent deal.  

I am not sure what the plan is in terms of metering each unit and passing that cost on to the tenants as well as other improvements that could increase rent, however, those costs should be part of the negotiations and hence on the overall price.  

@Milton Rivera

Appreciate the response.  I'm more just looking for opinions on the loan terms as this is my first time securing a loan for a multi-fam.    

It does have separate meters and rents are all under market.  I should be able to increase rents to around $11k per month even with charging utilities on top as I update leases/get new tenants.

You're correct on the property management, forgot to include.  I'm currently in a discussion with a company for 5.5% + $35/hr for routine maintenance + 1/2 month fee for finding new tenants.

@Alex Bekeza   it's a fixed for the life of the loan, structured like a conventional mortgage which is what attracted me to this particular estimate.  The other loan estimates I was getting were fixed for the first 5 (or maybe 10) with interest only payments in the beginning.  I liked that I was digging straight into the principal from the jump but maybe I'm not looking at it the right way.  It's a local bank in NJ, Gibraltar.

@Alex Staunton .  Yeah, I agree, not just building equity right out the gate but the fact that your interest rate is protected in this climate for 15 years is very valuable. (several hikes are already scheduled by the fed) No pre-payment penalty either.  I appreciate you sharing this because while I specialize in financing for self employed investors whose tax returns don't qualify them for conventional financing, I'm always looking to build relationships with great local banks so that I can build my business in that direction too.  I'll be reaching out to Gibraltar but don't worry I will not mention you.

I hope you continue to post updates on this deal.  Best of luck to you. 

15yr fixed loan for 5.25% is reasonable in today's market. Does the loan amortize over 15yrs as well? If your goal is to pay off the loan and own the property outright in 15yrs then this is good. However, if you are looking to increase monthly cash flow to earn a better return then I would suggest looking for longer amortization (25 years is typical) and possibly 80% LTV. Valley National Bank is willing to get to 80% LTV in certain areas of NJ.

As far as the 1% orig fee, this is somewhat standard although you may be able to negotiate them down. Try to push back for 0.5% and see if they will budge.