Multi family deal analysis (5 unit)

[Kyle Robichau]

This property off market and in the Houston, TX area and is technically a 5 plex. Triplex in the front and duplex in the back. They are separate. The NOI is 31,000 with expenses around 15,000. Listed at 215,000 with ARV around 315,000. The rent brings in about 3k a month. The place is in overall good shape, but could use some updates here and there.

My main question is would a lender consider this a commercial loan, or two residential properties? I’m wanting to do private money for acquisition, use Brrrr and refi into a 30 year fixed rate. I am not sure if the strategy is useful on commercial loans. 

Any insight on commercial loans refinance process and rates rates would be very helpful. I am most interested in the LTV they give and the time line.

Thanks!

[Michael Carson]

@Kyle Robichau what we'll typically do on the commercial side is finance anywhere from 70-80% of the purchase price. We'll analyze the cash flow based on the gross rents stressed with about 5 different occupancy rates from breakeven to about 1.30x debt service coverage to make sure the project can cash flow itself. Most of our amortizations are between 15-25 years based on the age of the property and condition and we'll usually match the loan term to the amortization up to 20 years. Our loans typically reprice every 5-10 years. For expense analysis we'll use actual taxes (from the respective CAD), estimated insurance, typically estimate a management expense (8-10% of EGI), and use an estimated maintenance expense (3-5% of EGI). In some cases we've financed 70-80% of the purchase price and rehab of a property interest only for 3-6 months, which then converts to a permanent loan. 

Debt service calculation equals ((gross rents * economic occupancy) - (actual+estimated expense)) / Annual debt service