Investor · Northeast, WI · Member since 2017 · 65 posts · 9 votes
Hi folks!
There is a property available in my town that is 3-4plex's. It's listed for $600,000 and could bring in $84,000 in gross income. After our best estimation with the info we have available we believe it could cash flow bringing in $1,500 net a month.
So far I've talked to 2 smaller banks and because it's more than 5 units it's considered commercial. Since it's commercial I can't get a fixed rate. Is this the case with all lenders?
I recently listened to "The Real Estate Guys" and they made a great comment about avoiding adjustable interest rates when approaching a downturn in the market and frankly I want a fixed rate. Can I find a 20-30 year fixed loan on a property this size?
Real Estate Agent · Media, PA · Member since 2017 · 361 posts · 250 votes
9y
Nick, my 2 cents on your question from a buy and hold perspective...no, you should avoid ARMs if you can. The fixed interest rate mortgage (especially with the rates we are still seeing these days) is one of the biggest boons of investing.
I'll let someone with more banking experience tackle your other questions.
Real Estate Agent · Media, PA · Member since 2017 · 361 posts · 250 votes
9y
Nick, my 2 cents on your question from a buy and hold perspective...no, you should avoid ARMs if you can. The fixed interest rate mortgage (especially with the rates we are still seeing these days) is one of the biggest boons of investing.
I'll let someone with more banking experience tackle your other questions.
Investor · Brookfield, WI · Member since 2015 · 42 posts · 8 votes
9y
Nick, 5 year fixed rate is going to be typical for 5+ units. You may be able to find a 7 year or even a 10 year fixed if you look hard enough, but not easy to find and the rate will be a bit higher. When underwriting your own deal, see how it could work in 5 years at a higher rate. If it doesn't work for you, it may make more sense to wait out the market. If you can increase the value/cash flow of the property during the first 5 years though, you should be able to overcome the rate change.
Wholetailer & Architect · San Francisco, CA · Member since 2015 · 544 posts · 298 votes
9y
@Nick Bleser read all the terms of the loan. The adjustable rate is not ideal for predictability but it will probably be lower right now than a 30yr fixed and a lot of times it is only allowed to go up by a certain amount per year but the other thing to look out for with commercial loans is they usually have a 5 or 10 year balloon payment where you will have to pay off or refinance the loan. A lot of 10 year balloons taken out near the peak in 07 are coming due so there may be more opportunities in your market.
Not sure what the configuration of the property you are looking at is but you might be able to subdivide the lots into 3 lots and get 3 separate conventional loans but it may not be worth the headache.
Generally in a crash interest rates go down to try and juice the economy. It is more it a typical peak interest rates climb but our current market is not typical.
Investor · Brookfield, WI · Member since 2015 · 42 posts · 8 votes
9y
Depends on the initial bank terms...I usually see the first 5 years locked and then it adjusts once a year after that depending on a certain number of basis points over a certain index (libor or treasury). Perhaps you could talk your banker into a ceiling on that adjusting rate (rate can't go higher than 7% for example)?
Rental Property Investor · San Diego, CA · Member since 2013 · 3k+ posts · 4k+ votes
9y
Local banks will do 5 years fixed. 7 year tops. Some commercial loans will go 10 years. Worse, they don't just become adjustable at that point... they become DUE.
it's just part of commercial RE.