I am new to this industry and I was close bidding on a duplex in Durham, but I decided to devote more time to finding additional financing options. I've been pre-approved for conventional and FHA. I have the cash down to purchase a property for 300K on 25%, but I would prefer devoting my cash savings on other investments. I've spoken with M & F Bank for a SBA that I've found reasonable 85% and 5.5%. Are there any financing options that are multi-unit friendly and have a higher LTV of 75%? And interest rates between 5-6%?
Welcome Victor. Are you looking hard money or more traditional bank type stuff?
@Brian Corbett I am leaning towards traditional banking, because of the rates. But I'm open to hard money if the financing and interest rates are competitive.
There are some of both available I beleive. I would take the time to go to some smaller, local banks and ask to speak with their commercial lenders. They tend to be more “open” to the multi-family lending.
@Victor George 20-25% downpayment is very typical for investment property. The interest you have mentioned (5%-6%) is pretty much what i have been seeing lately. You can probably get interest around 5% if you purchase the property in your name and do 20% down. I have not seen or came across lower LTV then that nor the interest for investment properties.
As @Brian Corbett mentioned, try to talk to some smaller / local banks / credit unions. As long as your investment structure is not too complicated, they might be able to help. They are also better when issues come up before closing. Large banks are probably the worst in my experience.
I'm guessing those quotes you got are for financing the purchase under your name. You can also consider using LLC or other incorporation type and purchase the property that way. I don't want to get into any tax benefits or liability issues but that is something you should consider as well. However, you will typically pay higher interest and its a bit harder to find commercial lender.
If you are talking multi-family, it will also depend if you are referring to 1-4 units (duplex, triplex, fourplex) - RESIDENTIAL or more then 4 units COMMERCIAL.
You also mentioned FHA loans as well as conventional. With FHA, you can go as little as 3.5% downpayment but you will need to pay PMI and have the property as your primary residence for at least one year. Conventional loans are probably what i have seen as the most common for new / smaller investors with 20% down and interest around 5%.
I would not even consider hard money for long term investments. The interest is typically 10-13% and they charge a large original fees as well.
Overall what you posted seems pretty typical.. You might save quarter of percentage point if you shop around. But also keep in mind, interest is on the rise and constantly changing.. If you can lock it for 30 years, i would do that.
Hey Victor, I sold a duplex this year in Charlotte which resulted in a bidding war. I'm sure the "winner" of that war will find out in the coming years they really didn't win. I would recommend finding a mentor first. An investor with cash and no experience is like a kid running around the house with a loaded gun!
@Brian Corbett - Yes, I have contacted at least 10 banks in or around the area. As of now M & F will provide the best option for multi-units 1-4 with a LTV of 85 and 5-6 interest rate. The loan will be a SBA under a LLC and I'll be the guarantor on the loan, which I have no problem doing. They'll want to see rent rolls and my W2 too. I'm hoping to find at least two more that can offer something similar.
@Jiri B. - The plan is 1-4 units, if the unit is higher and under 300K, I'd consider purchasing it. I'm actually in the process of creating an LLC. Because I occupy and rent my Stepmother's house at a very good price, I'll get a decent write-off and possible income loss on my first REI property. Our house is very good size and is growing in value, so we have no plans on leaving and we plan to purchase it down the line.
@Jason Smith - That is actually the frustrating part of REI of multi-units. I've witnessed these bidding wars and I want no part in it and I've declined to bid on properties that I've been interested in. I wonder will this be the recipe for a crash because I've very rarely witnessed any cash flow in it and I don't want to depend on the appreciation. NC market is hot and I'm actually looking at Greensboro, Winston-Salem, and even SC, GA, and DE. I'd love to find a mentor (good price) or a very savvy investor friendly agent.
Thank you all for your comments and advice!
@Victor George - I closed a loan with M&F Bank earlier this year for a portfolio of properties and I will tell you that they were very easy to work with. They are smaller so they can act quickly and know who exactly to talk to within they bank to get answers. I'm not sure you will find too many other banks that are going to offer you 85% LTV on an investment property. Best of luck!
I just got 75% LTV and had to push to get that. The bank originally offered 70%. So 85% is awesome! I'll have to look into M&F.