Rate difference on 4 unit vs 5 unit
If you were looking to purchase a small multifamily under 500k, how different does the rate / term look today on a 4 unit conventional vs a 5 unit commercial loan.
Context: I just sold a property and now looking to purchase a new one via 1031 exchange.
Challenge I’m running into is that There seem to be a fair amount of 4 to 8 unit properties but the financing is very different depending on that range. I’d like to have a more definitive target for my search but haven’t been quoted out many commercial loans.
How would you guys play this if your max deal size was 500k?
@Jonathan Farber
@Slocomb Reed
@Jonathan Farber the most important thing right now is to lock in your interest rate for as long as possible. The 4plexes will qualify for 30-year fixed loans, assuming you qualify as a residential borrower. 5+ unit properties require commercial loans, the interest rate is typically only fixed for 3-10 years, make sure you're on the longer end of that. With the historically low interest rates we're seeing now and the potential turbulence that may come in the next couple years, savvy investors are making sure they can ride out any potential storms without having to refinance at a time when the loan market is way less favorable.
Best advice is to get a good commercial and residential lender (likely different people) in each market you're looking at and pick their brains about what's possible right now. Best of luck!
@Slocomb Reed wise words as always
@Jonathan Farber This is actually what I advise my clients against.. If you purchase a building that's greater than 5 units and less than 10 and it isn't in a smoking good area, I would probably not look at it. A lot of these deals are too small for serious commercial players and too big for residential, since they are greater than 4 units.
Up to 4 units you have all the dcr rental loan players available, as soon as you go 5 or more, you should have a community bank or credit union lined up to do the deal if it's something you really want to pursue.
@Eric Johnson - thanks for the feedback. Who would you advise to look at deals 5-10 units