Advice on Looking for Commercial Lender for a 5-Unit Building?

Question

I have identified multiple 5-unit buildings that I am looking to purchase in the Fall River, MA area. Originally, I was looking for FHA loan, but when I found a 5-unit building within my budget, they told me that FHA doesn't work for that because I need a commercial loan for anything over 5-Units.

I'm looking for advice on how to find a commercial lender to work with, whether my personal income / credit score factors into this?

Full Disclosure: It's my first time investing.

Stephanie P. · Answer

If you are looking for a 5 unit to live in (I'm guessing that because you were looking at FHA and it's your first property), that's not going to happen but you were on the right path.

Find a 4 unit that will satisfy FHA's self sustainability test and make it work.  Your cost to entry will be lower, your rate will be lower by a third and your ability to manage the property because you live in it will be way easier as well.

Jonathan Taylor · Answer

@Kristian Kotov I agree to the above comments but your limitations here may be experience. My lenders in the commercial space do not lend to first time borrowers. Experience is always required. So regardless of LTV, DSCR confirm that the lender will accept a first time investor.

Robin Simon · Answer

The 5-10 unit multifamily is a pretty distinct financing niche - most options outside of a traditional bank or credit union will likely underwrite it based on the asset not your personal income

Erik Estrada · Answer

There are both full doc and no doc options for 5-unit properties. They will most definitely be a commercial loan. Happy to connect.

Julien N. Hill · Answer

This is something in our wheelhouse. However, it is important to note that long term commercial products will most definitely factor in your credit as well as the debt service ratio (DSCR) of the asset to determine the leverage.

Income is not a determining factor in the private lending space; however, we do like to see some liquidity available to you that could hypothetically cover monthly payments for a scenario where the tenant (stopped paying, moved out, etc.)

Please feel free to reach out and we can discuss more of our loan programs and the options that may be available to you

Kristian Kotov · Answer

Thank you for your reply - My financial background is complicated because only in the past 8 months has my career really taken off, and most convenentional lenders want to see at least 2-3 years of consistent income. I know absolutely nothing about the commercial lending space, and am already googling my way through that one, but I'm in a not so unique position of not knowing what I don't know so... I'm asking a lot of rookie questions.

Stephanie P. · Answer

FHA is by far the least expensive and most aggressive (when it comes to LTV) loan product out there.  You can get in with 3.5% down payment and all of that can be a gift and the seller can contribute 6% toward your closing costs, so in theory, you can get in with no money out of pocket.  Having said that, the self-sustainability test is simply that; the mortgage has to be covered by 75% of the rents and if it's not currently rented, they'll use market rents from the appraisal.

Kristian Kotov · Answer

Thank you I'll message you privately about that one.

Robin Simon · Answer

Yes - personal credit and a very limited review of liquidity (want to see like 3-6 months of debt payments in the bank or assets)

Advice on Looking for Commercial Lender for a 5-Unit Building?

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