Own 16 unit complex clear-Need loan to help sister pay tax lien

7 Replies

Hi everyone, I have a 16 unit building owned free and clear, gross 150k per year appraised at 1.1 million in 2009. I need about 150k to help my sister out of a financial crisis, in addition to that I have been advised by many people to pull equity out of the building and leverage it to purchase another building and or use the additional money to pay the cost of separating the utilities here. I'm wondering what kind of loan I should be looking at. The property is in Metrowest county in Mass. The bank I'm speaking to now are trying to get to to sign on for a 400k 5/5 ARM loan. 4.5% initial interest for 5 years 20 year amortization. Should I be pushing for a simple 15 year fixed Refi (there is no mortgage on this building). Should I hold off on taking out any more money then I need to help my sister until I locate a good building I want to purchase? I want to stay within the same area because all my contacts are there and I travel alot.

Thanks!,

Ryan

Hi Ryan, the best loan for you would depend on your long term goals.  When it comes to holding off till you have a prospective building to buy, I would caution that you don't want to go through with this process twice.  If you want to buy a building in the near future and you want to help your sister now, pull out the money needed now and then actively find the next investment to avoid any wasted time.  Personally, I would be shooting for a 30 year amortization rather than a 20 or a 15.  Depending on the transaction, I would think that you could get something in the low 4's on a 5 year fixed period.  I am thinking somewhere in the mid 4's for a 7 year.  I hope this helps, call me if I can help in any way.

Does the 4.5 rate on a 5/5 20 year amor. seem high to you?  I only seem to be able to find avg rates for homeowners and its different for 4+ unit income properties correct?  What kind of rate is fair right now for my situation?   Also you say 30 year amor. vs 15 or 20 just wondering what the thought process is on that, won't I save more money going for 15?

It does seem a bit high based on current rates, but I do not know your entire situation to judge accurately.  I would think that you should be able to get an interest rate in the high 3's somewhere.  The key will be the loan amount.  Many commercial lenders want the loan amount to be at least $500,000, some want $1M or higher.  I would give you options at $400,000 and at $500,000, then let you decide.  Regarding the 30 year amortization, I personally like the flexibility, especially when considering other properties to buy.  You can always choose to pay a higher payment each month, as if it were a 20 or 15 year am, but have the flexibility to pay less.  The only time it is really beneficial to take a 15 or 30 year am is when you can get a substantially better interest rate which is not really the case considering the possibility of a 5 year, 30 year am, in the high 3's.

ok thanks all great info... what about the 5/5 ARM angle? Should I be looking fixed, are these things I should just attempt to negotiate with this lender-- should I be shopping around also?

The 5/5 ARM is a good loan. 15, 20, or 30 year fixed are not common loans when dealing with commercial properties. I would think a 5 year is more than appropriate. The key will be to get the highest rate. We offer commercial financing, with a file I can give you a solid quote. Call me tomorrow if you have a moment. To answer your question though, based on your quote you've received already, I would definitely shop it around.

Why not a line of credit? that way you have access to the full amount approved for, but only pay interest on the amount you have pulled out at any one time. 

thanks for the info guys.. wells fargo has a 2 year line of credit that reverts to a 10/25 arm starts at 5 points prime plus 1.5.. would this be my best option over a  5/5 or 5/1 given my circumstances?

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