What type of lending is best for me? commercial, res, portfolio

Question

A little about my situation -

I owned a business in my town for several years before starting the REI thing.  During that time i built a very good relationship with the current bank i am using and, more importantly, built a good relationship with the commercial lender in the bank.  The bank is a large national bank.  When i bought my first rental it was a duplex and i started an Inc. and bought the property using the commercial lender under the corps name.   Partly because i trust them and they have given me a TON of advise and definitely gone above and beyond.

I currently have 3 loans with them.  2 are 10 year loans with a 5 year ARM between 5-6% and they usually require 20% down although i did buy one on a HELOC and just paid it off when i sold the flip.

The other loan is an interest only loan they gave me to do a flip that i have finished but wound up renting immediately after i finished (complicated and a story for another day).  Regardless i would LOVE to keep this house as a rental long term and i have about 100K equity in it currently.

SO I FINALLY GET TO MY QUESTION!!

Is the commercial lending really the best option for me???  I have already talked to the bank and if i do refinance this "flip" and keep it long term ON THE RES side then i could get a fixed 30 year for under 4%.  I could also get 80% of the appraisal cash out if i wanted to finance my next deal.  I think it will appraise for 225k or more.

I have considered shopping around for a portfolio lender but i REALLY like the people i'm working with at this bank.  They have show a huge interest in what i'm doing and the lenders even stop by properties i am rehabbing.  They have given me a LOC several times.

Is it any safer to use the commercial side?  It seems like they care a lot less about my debt to income and look a lot more and my asset to liability.  In other words down the road it may be easier to acquire more properties on the commercial side vs the res side???  I am also probably going to own a commercial property at some point so thats another benefit to using them.  With interest rates so good at the moment i'm just not so sure a 5 year ARM on a 30 year loan is what i want to do. Especially when the interest rates on the commercial side aren't as good in the first place.

Should i refinance all my properties to take advantage of fixed and lower rates on the RES side??  I could keep the two i have where they are at since i have like 8 years left with with 5 year arms ??  Should i just do this one since its a bigger property and i want to do a longer loan on the RES side to take advantage of the fixed 30??

Really appreciate you if you made it all the way though this post :)  any and all advise would be very appreciated!!

Jake Riner · Answer

Daren and Kerry,

Thanks so much for your quick response.  Part of it, like Daren said, defiantly comes down to what my long term plans are for these properties.  The age old debate on weather paying down rentals as fast as possible and having a few or trying to get as many as you can with financing.  I go back and forth :) Usually my mind changes around tax time ....

Kerry Baird · Answer

As ^^^^ above.  Aim to get the first 10 "easy" mortgages and then go to the portfolio lender.

Daren Jones · Answer

Hi. Great questions. I think there are a few more variables you would need to ask yourself as these are very general questions and everybody is a little different. The one thing is the loan amounts, are they conforming. How long are you looking at keeping the properties, or more importantly how long are you going to "stay in" the loans (would you possibly refinance them for other property purchases if they doubled in value in 10 years).

As a general rule assuming you have less than 10 properties I would say almost always refinance the debt into a 30 year fixed product. It makes way more sense from a stability and long term forecasting tool. The rate will stay the same for 30 years. The current rates are lower on the 30 year products and until you meet the maximum loan amount or property threshold why would you not? I think the only thing that is safer is the ability to acquire the loan given your current banking relationship.

Can you use your current bank for the 30 year fixed product? The worst case scenario is you have to have a commercial loan if you do not qualify for the 30 year product. When you purchase commercial you will most likely have to have a commercial type term down the road anyway. I think the safer loan is the 30 year fixed product.

Regarding the relationship. I think if it is a true relationship they would want you to do the same and lower your debt to income ration by having the lower rate and the commercial banker would want to have you know that you now have a much more stable portfolio with the fixed rate product. Just make sure if you do have a pre-payment penalty they will waive it on your current loans.

I hope I answered all of your questions and this helps.

Daren