Rental Property Investor · Cape Coral, FL · Member since 2015 · 206 posts · 83 votes
I've been looking into smaller multi-family properties (up to ~15 units) and am wondering what kind of financing/terms are you seeing and what you consider favorable? Do you have a preferred lender or do you repeatedly shop for the best current rates? Depending on terms I'm looking at purchases up to $500k.
The $500k commercial loans multi-units it's what I called the "gray area" as rates and terms are not ideal. You are better off to accrue a few 4 units since is residential and enter the commercial for loan of min $1 million. Freddie Mac has a great program for 5-75 units with loans starting at $1 million , 85% occupancy, 80% LTV, non recourse and low rates. I do a lot of residential multi units and sometimes buyers want to move up to commercial too quickly or as their first property which is not realistic. Most commercial loans also require you have the same net worth as the loan amount.
@Chris Virgil-Stone, I am not much help, but I my cost of financing has gone up. It is currently costing me 6.25% interest rate and 1% loan origination fee. I have heard you can get up to 25 years on rental property, but I have only gone out 20 years.
@Jerry W. That sounds pretty good, right now I have a referral for a company at 7.5% and lots of fees. Is that a local group you're working with? I'd love to know more, I'm looking at a 12plex and in a different location 2 6plexes. The 2 6 unit buildings are a package.
Unless you can get to borrowing 1M your rate and years will be 6-7% at 5-10 years amortized over 20-25. When you get the larger mortgages you may qualify for Fannie and Freddie loans. 30 year, interest only for the first 2-3 years. Lots of qualifiers. Listen to Old Capital Podcast with Michael Becker and Paul Peebles. They do a great job explaining the process. They are out of Dallas/Forth Worth. It’s worth a listen.
If you go to smaller local banks and use commercial financing today you will get 6.25% at 20 or 25 year amortization.
@Kenneth Garrett thank you! I'll check out the podcast. I've done some local searching but need to look more. Local lenders I've talked to have said they loan to owner occupied commerical but not on multi family.
You need to keep talking to the small local banks and credit unions. You want to apply for a commercial mortgage on a residential property. It is non-owner occupied it is an investment property. Be clear about your strategy. Commercial lenders will only borrow to an entity. Own it in a LLC or other entity.
The $500k commercial loans multi-units it's what I called the "gray area" as rates and terms are not ideal. You are better off to accrue a few 4 units since is residential and enter the commercial for loan of min $1 million. Freddie Mac has a great program for 5-75 units with loans starting at $1 million , 85% occupancy, 80% LTV, non recourse and low rates. I do a lot of residential multi units and sometimes buyers want to move up to commercial too quickly or as their first property which is not realistic. Most commercial loans also require you have the same net worth as the loan amount.
@Chris Virgil-Stone, I closed a deal the day before thanksgiving that was just over the 500k loan amount. As some have mentioned it was 25 years and was at 5.625%. This was more of a regional bank that I had a relationship with. I’ve had better luck with the local banks that I can articulate the deal to. Best of luck,
@Kenneth Garrett I'll keep looking! I have an LLC set up.
@Diana Muresan Net worth I'm about there, I own a few single families. I'm considering 2-4 families as well but have identified a couple larger size properties in good areas that are value add opportunities that will have a higher return.
@John Brees congratulations on closing the deal! I plan to keep looking. I have relationships with a couple local lenders-but those are the ones that wont lend on multifamily. I'll keep networking with other local investors and reach out to other lenders. Do you mind sharing detail on the deal you just closed? What the analysis looks like.
@John Brees 25 year term or 25 year amortization and shorter term?
@Chris Virgil-Stone we have done 3 (2 closed in past 4 months and 1 in process and will close in Feb) and all 3 have been between 900k and 2.4 million loan amounts, all with Opus bank out of Socal (through a local broker) all had 4.75% initial 5 year terms with a second 5 year term with rate reset and lifetime rate cap of 5.25% (both have 30 year terms, so when rate resets, amortization resets to a new 30 year as well...this is good as payment drops.)
75% LTV, 1.2 debt coverage ratio. We did a portfolio loan with a regional bank on 5 properties (1 loan with 5 properties) and had 4.65% with 5.125% cap but it was a year ago.
As others have mentioned, it can be hard to find anyone wanting to do under 1 million, but shop around, talk to brokers AND banks, especially local ones and credit unions.
@Richard Sherman I hadn't heard of rate reset before. Basically a refi without pulling cash out...pretty cool. I haven't talked with any local brokers but will look there as well. Congratulations on all of those deals. I appreciate the feedback!
Hi @Chris Virgil-Stone are you making your purchase in the Atlanta area? Im looking for small multis as I am used to Chicago small multis. Please advise.
@Chris Virgil-Stone, I have used several small banks over the years. I currently use Central bank and trust. I have used Big Horn Federal Savings and Credit Union, and Pinnacle Bank. The first two are only in Wyoming and Montana, I think Pinnacle is pretty big, but is privately owned.
@John Brees Was it 25 years amortization for 5 or 10 years or simply 25 year at 6.25%? How much was the closing cost? If you don’t mind sharing more information
@Chris Virgil-Stone I’ve had a tough time doing this as well lately. I used to have a great commercial broker but he changed jobs. My last deal they jacked the rate to 8.75 a week before closing. Needless to say they won’t see an app from me again.
I’ve just started with a new broker that I got a referral from a fellow investor.
I know the kids don’t like contact info so DM for his info.
@Allyn W. I'm looking at commercial multi-family in north GA and smaller mult-family (4 &under) in northern NY. The 4 plex and under are easy to fund, its jumping to the smaller commercial that it gets difficult. I haven't found many residential multi-family in the Atlanta area that isn't overpriced. Any particular area in Atlanta you're looking?
@John Hickey That's terrible. You're pretty much caught at that point. Unless there was a change in information they used to make the initial rate, it leaves me wondering if they do that regularly knowing the investor already has money tied up. Not sure how common it actually is, but I have read that a mistake many people make is not securing back up financing. Is this something you do? I'm assuming this is probably more important on the first few deals.
Jerry, Kenneth, and Diana provided relevant information on what to expect.
For multifamily purchases under $750K, rates range from 5.75-9.5% depending on credit and LTV. For purchases above $750K, rates will typically range from 4.75-7.5%. For reference, the only deals seeing 4-4.5% rates are $1MM and above at 60-65% LTV with Tier 1 Credit (FICO over 750).
Need to add that the 1mm min loan on FreddieMac on the 5-75 units LTV is higher. I have 80% LTV with rate starting at 5% and is not based on FICO score
@Chris Virgil-Stone funny you mention change in info. I was using a broker.
Right after the app went in I had a tenant call with a complaint of falling ceiling. When I went to check it out he had a hooker in his room. So I started to evict. About a week went by and I got a letter about a lawsuit. Then a violation from DOB.
Now all this might seem outlandish but I’m in D real estate stuff happens.
I don’t have a lot of claims. Third one in 13 years. I usually negotiate before it goes to court. Never settle tho.
I pass along the info and wait. Broker says no problem, title came through already well close soon. No need to provide info wait and see if they ask.
90 days later we’re ready to close and they start asking for info.....he hits me with the 1/2 point increase.
He can’t remember me telling him about the ceiling and violations, says it’s the best I can hope for. Car salesman.
I’ve done many mortgages. I used to do two apps but it’s a pain and costly as well.
i am a commercial mortgage broker @ Progress Capital, every deal is different every borrower is different.
i can say anything over 6 units, i get my clients 30 year amortization and rates under 5%. often i am getting 165 BPS over the 5 year, flexible prepayment penalty based on overall strategy behind the refi or purchase and i get my banks to waive commitment fee or .025 BPS
for anything under 3 , dm me and ill tell a good plan of action to get the loan closed with a favorable terms. i am actually working with a few people on this currently