Loan options for multifamily

[Jay Malaviya]

Hello BP community, really need your advise here.

We are a group of 5 people wanting to invest in multifamily residential property. This is our very first time and really confused whether to go for conventional loan or commercial loan.

We don't want our names on loan since it will affect our personal future loans down the road so we thought about forming an LLC but LLC needs commercial loan and interest rate is higher for that so difficult to maintain positive cashflow.

I know I can’t have the best of both worlds but really wondering how do newbie investors go about this? Any advise appreciated.

I checked about due on sale clause too so transferring the loan on LLC later is also not an option.

[Kevin Romines]

You are wanting the best of both worlds, which you can't have. If 1-4 unit, in order to get the best terms you must do a conventional loan, meaning Fannie Freddie. I would do a Fannie Mae loan, as Fannie as of 6/1/2016 changed their rules and now allows you to transfer title after closing to a LLC that has the borrowers on the loan as the majority members of the LLC.

If you want a loan to the LLC without personal guarantees, that would be some Non-QM loans or some commercial loans, however the rates tend to be 2% higher than Fannie Freddie.

Your concern is that having this loan in your personal names, will mess up the potential for future loans. My comment is, it really wont do that if your rents are at least 25% more than your PITI mortgage payment on that property. AT that point it isn't hurting your debt ratio in any real big way, so it wont cause a debt ratio problem going forward.

If it were me, I would do the Fannie Mae loans in 1 persons name with all parties on title. You can each have up to 10 loans, so if there are 4 of you, you could have potentially 40 properties collectively before being out of Fannie Mae slots. At that point, I would roll them into a commercial blanket loan, thereby opening up your Fannie Mae slots again, to buy another 10 each.

You cant avoid the additional costs of a Non-QM or Commercial loan if you plan to grow beyond 10 units each. Its just a fact of life, so embrace it, plan for it, and mitigate the effects of it.

I hope this helps?