Investor · Bryan, TX · Member since 2015 · 31 posts · 6 votes
Hey guys! Hoping y'all can help me. I own 4 SFH and only know/understand my experiences of personal conventional mortgages where I put 20% down. However I am in new territory
I recently got into a partnership deal in Bryan college station, tx BCS. We have created an LP and began talking to a regional bank. We have one member of the partnership that has a high net worth and he says when he was talking to the bank that they suggest based on the loan that our first financing to be a 5 or more unit to qualify as multi-unit. He is saying that we would be structuring a no money down or low money down mortgage based on combined liquid net worth.
My questions are:
Does this make sense and can anyone help clarify?
Second should we even do this? We are trying to do little money out of pocket.
Third is if we go this route is there any flexibility in combining multiple SFH deals into one deal as a multi-unit purchase?
Look forward to any feedback.
Investor · Haslett, MI · Member since 2016 · 24 posts · 17 votes
10y
@Cody Begg 5 or more units is a commercial loan vs residential loan. The bank will likely loan you 70-80% LTV - so if you already have equity in the 4 SFH's you have you would not need to put anything down to convert those into a commercial loan (assuming the bank would let you). Call around with different lenders. Some will roll multiple SFH's into one commercial loan, some will not. Some will let you start with 3 or 4 units, most will make you have 5 or more. Credit Unions are more flexible than banks. The good thing about commercial loans is that they are not on your personal credit (if you get a non-recourse loan) so it won't bog down your credit if you are trying to purchase a personal residence for example. Be diligent about reviewing terms - most commercial loans are 20 year vs 30 year, and they come due (or up for review) every 5 years.
Investor · Bryan, TX · Member since 2015 · 31 posts · 6 votes
10y
@Account Closed that is extremely helpful! Thank you. I will ask those questions to the bank we are currently negotiating with and start shopping around!
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
10y
With 4 residential loans already, you are probably at the FNMA max allowed. Or this is a commercial lender only? Every time I ask an insurance agent what to invest in, they suggest an insurance product. Funny that, right?
Commercial loans don't have to fit in Fannie's box. May be a blessing in disguise. Bought right, commercial assets can be awesome @Cody Begg.
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
10y
I don't know why he said you could do no money down. Normally banks want 20-30% down on commercial properties but it sounds like there are other factors in your case.
As @Account Closed said 4 units or less is considered residential. This means you can get the same type of loans "Mortgages" that people get for SFH. 5 or more units automatically means it is a commercial loan and the terms can be totally different. With residential loans the terms are set by the secondary market the banks sell the loans to; Fannie Mae, Freddie Mac etc. With commercial loans the banks have more flexibility to set their own rules.
Keep in mind commercial appraisals and other closing costs are higher.