The answer to this question is pretty much universal. Hard money loans are only short term solutions. You will absolutely want to have an exit strategy set in place. Generally hard money would be used to buy/fix up a property and then REFI into a conventional loan if holding. Make sure your numbers are right before getting into something like this (you make your money when you buy) and force appreciation to maximize equity position prior to approaching bank with REFI request.
How many units is the multi-unit? 2-4 is easy, but 5+ can be difficult because you're entering the commercial realm and that has more restrictions, usually requiring experience and has high minimum loan amounts.
Definitely agree that you should get pre-approved with a refi lender first before finding a deal or a hard money lender. You wouldn't want to get stuck in a hard money loan that you can't get out of.
I would have to agree with Jamaal and only slightly disagree with Nghi. When dealing with 5+ I would make the argument it may even be easier to qualify for a loan. As Jamaal eluded to, hard money is a short term solution for acquisition of distressed properties and quick closings. But if you are looking to refi instead of sell as an exit strategy you will want to know who will be lending you the cash to take out the hard money lender.
When dealing with 1-4 units you will be most likely getting a personal (conventional) mortgage so good credit is a must for the most part. They will also be looking at debt to income ratios, verifying income etc. Where as with a 5+ unit they will be more concerned with the performance of the property and if it cash flows. They will also look at your personal finances and credit but it will be more about the property itself. Your best bet might be calling around to some local banks (portfolio lenders have flexible underwriting) and seeing what they will require to get a commercial loan on multi family properties.
I should have mentioned that I was mainly referring to the hard money side (since I have more experience with that). If you're doing larger multifamilies and apartments, most HMLs that I've seen will not lend to you unless you (or your partner) has experience with the same asset types. Commercial deals usually require more down payment as well (20-30%), not the 10% down that you see with the 1-4 units.
The smallest loan minimum I've seen for 5+ units is $250k, but most consider a small balance commercial loan to be $500k+ or $1M+. This works well with coastal markets, but not the midwest. Ask me how I know; I recently purchased a 6-unit for $100k.
In contrast, the smallest loan minimum I've seen is $50k for 1-4 unit properties. Most are $75k or $100k though.
On the conventional side, I can tell you that I've had problems with my 6-unit for $100k. Residential lenders won't touch it, and commercial lenders tend to value it with comparables (like a residential) instead of the income approach because it's more similar to a 4-unit than a 20-unit apartment. So I get the worst of both worlds treatment. It cashflows like crazy, almost a 24% cap rate, but the valuation is still off for me. Calling local banks didn't work for me as most of them won't lend to out-of-state investors.
Hi Chris. I'm on the lending side of things. You should check out www.11capitalfinance.com. Product sheet on the site. 10,000 loan variations plus a net branch system where you can learn the lending side of things and earn on both sides of the fence, doing your own real estate deals and the ones you don't offering financing. Every real estate investor should be earning on real estate AND finance since they are all out here originating, but only earning on 1 out of 20 deals they see. Adding finance means you can potentially earn on 20 our of 20 deals. Pretty cool stuff. CP
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