All Forum Posts by: Colin Kelly-Rand

Hi all,

I figured out try to add some value to someone's day. If you are curious where commercial rates are on any given day in the Boston area, a good place to start is to head to FHLB and check out there rates for the Long-Term Classic Advance Rates for a 5 year loan (3.87% today) and then add a 2%-2.75% spread. So today's rate for a 5yr fixed is around 5.87% to 6.62%.

And the rate will float until you likely get your commitment letter 45 days later. So make sure you are working in some room into your pro-forma. Secondly, if your getting a commercial loan, the rate is only one part of the conversation. Commercial loans are flexible - you can negotiate on prepay, LTV, points, escrows, cash-out, construction funds, earn-outs, assumable, loan term (length) etc.

If your looking for FNMA 10 year Multifamily rates for cash flowing properties you may be looking at 2% spread over the 10yr US Treasury (~3.37% today) which would indicate a 5.37% rate. Much juicier than 5.87%, but also not as flexible and typically not for construction (they do have some programs for rehab of larger projects). That's just indicative, actual rates vary widely based on LTV, DSCR, affordability, location, loan size, etc. When I was underwriting at Walker and Dunlop I would check marketwatch.com 10 yr treasury rates every morning to see where rates were at. When the treasury dropped, work picked up. The worse stocks do (the more fear in the market) the lower the treasury heads and FNMA/FRE rates have usually gone done with it. 

What rates have you all been quoted recently? 

@John Morgan

DFW is a nice spot - was in Fort-Worth last year enjoying the Stockyards as a tourist. 

And on a side note - my neighbors were looking around Boston MA - had a deal for a four family fall through and then decided.. DFW as they could buy a kick-*** single family home and have leftovers for a rental. Work from home is really changing some lives.

Cheers, 
Colin

@Salina Doe

The joys of home ownership! 

I am a fan of using an attorney especially since covid-19 a few more roadblocks were set up.

Keep good records.

For evictions I use attorney Jordana Greenman

(617) 379 6669 (tel. & fax) www.jrglegal.com

@Apoorva Paruchuri

I do think you need to find a property that breaks even with you living there and not paying rent, and makes money when you move out. Yes, its hard to find now . I would continue to look so you are ready to pounce when a property that meets your criteria hits the market and you can get in an offer that same day. 

Also - I do not think you should be looking at only 3 families - consider condos as well that are mispriced (developer needs to sell before his lender forecloses type of mispriced). 

In general - be opportunistic - get your finances in order (what can you afford, what type of loan do you plan to use) and once that is in order - start reaching out to brokers and letting them know your criteria. Perhaps you will get an advance notice about a property that will be hitting the market (or an off-market listings). 

The greatest benefit when buying a cash flowing property with high rates, is you benefit when rates fall and refinance. I can imagine 5% rates coming in a few years, I am having trouble imagining 2%-3% rates in the near term (so anyone who has a 3% now is rather limited in their refinances).

@Stephen Torti

Commercial terms often include a fixed rate. 

The most typical commercial fixed rate is for five years, and then an additional 5 years floating for a total term of 10 years. There typically is prepay of 54321 on the 1st 5 years and open for the floating rate period. 

HOWEVER, there are 10 year options although typically you end up with a swap rate if you are doing 10 years (bank is just the middle man and someone else is the counter party - paying the floating rate for your fixed rate). We have two 10 yr swap rates. We are in the money (i.e. rates have risen and our counter party would likely like us to break the contract. ).  

When you get to 5+ unit properties you can also do FNMA or FRE Mac Multifamily Loans that offer much longer fixed rate periods (up to 20 years). I used to underwrite these for Walker and Dunlop so very familiar with the program. Some really interesting options especially for top markets - such as 10 years interest only - which could be great if you are predicting a large amount of appreciation to make up for the lack of paying down principal.

Honestly, 10 years fixed is quite a bit of time to pay down mortgage - and after 7-10 years you will likely feel the itch to 1031x to harvest your equity and increase your cost basis (reduce taxable income). 

@Stephen Torti

Ah! Interesting! Well back to my point #2, you have to get that additional $4k from somewhere (some very levered investment). I can imagine plowing that $240k into a rehab and getting the 20%+ cash on cash in a 3 yr period. Although I am a fan of the benefits of long term fixed debt - usually your borrowing at lower rates than you can earn on your money elsewhere. (And when you can't find a better rate than your borrowing, that's when you pay down debt...). 

@Stephen Torti

That sounds horrible on the surface. 

What is that $7,000 number based on i.e. Is that a monthly payment or annual? (Pretty high interest rate to make a 240k loan into $7,000 a month payment).

I can imagine Buy Refi Die works in a one or two cases: 

1) You have 3 years to live.

2) You are reinvesting that $240K into transactions that will offset the $4,000 variance ($7,000-$3,000) (a 20%+ Cash on Cash transaction). 

The more typical approach when you have a $300k property that is paid off is to 1031x it into a larger property, with the same or better net cash flow and a greater cost basis. Due to the higher cost basis yo will have higher depreciation to offset your taxable income.  

@Lin Yin

No magic to it. High amount of rentals. 

I do think quality of apartment is mattering more- demand is down right now for larger units (3/4 beds) - but it also is very seasonal. College students were going crazy sept 1 and Jan 1 looking for housing which ripples over to demand for everyone at those key moments (im sure its the same in Chelsea and Everett).

Dorchester is also a very large area - and neighborhoods have their own flavor. Some are spicier and that may make leasing and managing harder. 

@Sage Souther

Congrats! How much rate shopping did you do before choosing your lender?

I am assuming you purchased as a owner-occupier? 

Cheers,
Colin 

@Nick Li

Patience! I imagine prices will start to reflect the higher rates and these FHA loans will work again.

I did a 3% down in 2011 - bought a 3 family that where 2 units rent covered the mortgage and I rented 2 rooms in the apartment I lived in to cover other expenses. 

Now in the Boston market the rents are around 2400 for a two bed (Dorchester and similar areas) - so about 4800, but 3 beds are around 2700 (up to 3000).

With rates at 6.5% (rounding) and 1% in PMI annually,, I believe you can hack a property once prices are around 725k for a 3 family (2 bed units) or around 800k for a 3 family (3 bed units).Prices are not quite there yet but getting closer. Also, higher finishes (higher rents) can skewer what you can pay upwards, as well as if you can get a lower rate (perhaps with a 5/1 ARM).

What rates have you been quoted?

(I am a commercial debt broker and I have not requested residential rates recently. I'd love to hear what you are seeing for rates.)