Bank loan offer. How do I read this??

5 Replies

Background: I own 7 properties, total 24 doors. Current loans are a jumble of 4.25-5%, 5-10 years balloons. Total outstanding mortgage balances: $498,000

I approached my lender (Local credit union) looking to refinance all the mortgages into one large one and create a line of credit with the equity in the properties so that I have money avail for "Cash" offers.

I'm looking for red flags, points for renegotiation, and any advice would be appreciated.

Here is the unofficial offer from my bank:

Loan 1:

Loan amount: up to $525,000 including all closing costs not to exceed 75% of appraised value

Rate: 4.35% fixed for 60 months, then to adjust to 350 b.p. over the 5 year UST Constant with a floor of 5.38% & no ceiling.

Term: 120 months

Amortization: 240 months

Origination: 0.5%

Loan 2:

Business Line of Credit: $100,000 not to exceed 75% of appraised value

Term 24 months

Rate 5.50% fixed

I'm not a financial guy, but I'm not really happy with: no ceiling, 0.5% origination, and 24 month term on the second loan.

The biggest problem is that they are going by purchase price. I was hoping to go by 75% of current appraised value and was hoping for a second loan closer to $225,000.

Can anyone comment on if this is a reasonable offer? 

Which points can I, and should I negotiate on?

Thank you for any help and advice

Gary Myers

Tampa FL

If any are 4 doors or less, why not utilize the 30 year fixed loans? You can have up to 10 loans, but they need to be residential, up to a quad plex. This way you maximize cash flow and lock in your rate.

@Gary Myers ok here is what I would do for each loan.

Blanket Loan

Try to get them to 80% LTV

But honestly they are giving you a great interest rate so you have to calculate how much actual cash in your hand is another 5% vs that interest rate going up to 4.9 etc

I do not like that after 5 years their is no ceiling for the rate reset

Are their any prepayment penalties?

Are they asking to review you financials yearly?

Find out exactly what happens say for example in year 3 you want to sell one of the properties out of the blanket loan how do you get that property released

LOC

How can you draw on the loc?

Are the payments interest only or interest and principal?

Some LOC have a yearly clean out period they require you to pay it down to zero every January for 30 days before you can access it.

24 months is too short if they will not go to 5 years I would say just do the entire thing as a cash out refi.

If it has been more then 6 months that you purchased these properties they should be using a new appraisal not purchase price.

Go to a second bank and bring them these terms and tell them to beat it. Unless you have a relationship with this banker, I pay a higher interest rate with my banker on portfolio loans then where I could get elsewhere but he gets things done for me and the bank is easy to work with and that is more valuable then saving a few pennies.

Originally posted by @Brock Halstead :

If any are 4 doors or less, why not utilize the 30 year fixed loans? You can have up to 10 loans, but they need to be residential, up to a quad plex. This way you maximize cash flow and lock in your rate.

Thank you for the reply Brock .

They are all 4 doors or less. They are also under the name of my LLC. The Credit Union I work with will not provide a 30 year fixed under a LLC. I'm working through their business department.

Wow! Great info and ideas! Thank you.
Comments imbedded in your response.

Originally posted by @Eddie T. :

@Gary Myers ok here is what I would do for each loan.

Blanket Loan

Try to get them to 80% LTV.

Can try. I'm actually happy with the 75%. A bit less extended. 

I do not like that after 5 years their is no ceiling for the rate reset

I'll insist on it.

Are there any prepayment penalties?

No

Are they asking to review your financials yearly?

No. Only when I've approached them for a new deal or loan.

Find out exactly what happens say for example in year 3 you want to sell one of the properties out of the blanket loan how do you get that property released.

They will prorate it out of the original loan. Not sure about all the exact details, but I did ask the exact same question and was told it would not be a problem.

LOC

How can you draw on the loc?

Either with a linked debit card or checks.

Are the payments interest only or interest and principal?

I'll ask.

Some LOC have a yearly clean out period they require you to pay it down to zero every January for 30 days before you can access it.

Don't like this option at all.

24 months is too short if they will not go to 5 years I would say just do the entire thing as a cash out refi.

Now this is the idea I missed! Cash out refi! I like it. An opportunity to pay myself back the money I have invested in the LLC. Then use it for a new LLC or just pay off my primary residence mortgage and get a LOC against that. Lots of options I guess.

If it has been more then 6 months that you purchased these properties they should be using a new appraisal not purchase price.

I was already told they require 3 years to be able to use the current appraised value.

Go to a second bank and bring them these terms and tell them to beat it. Unless you have a relationship with this banker, I pay a higher interest rate with my banker on portfolio loans then where I could get elsewhere but he gets things done for me and the bank is easy to work with and that is more valuable then saving a few pennies.

 I would hope to avoid this. I already have many years experience with this loan officer and Credit Union. They have already promised me financing up to 2 million on any future deals depending on the numbers of course.

Thank you Eddie! You have given me a lot to think about.

Originally posted by @Gary Myers :

 I would hope to avoid this. I already have many years experience with this loan officer and Credit Union. They have already promised me financing up to 2 million on any future deals depending on the numbers of course.

Thank you Eddie! You have given me a lot to think about.

I think this trumps all the rest. Building a nice solid relationship with the existing loan officer and CU is worth more than the aggravation of looking for a fraction of % lower interest rate with a different bank.

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here