Help with Mortgage Financing on Small Multi-Family outside Pittsburgh

[Tim W.]

Hi All,

Was hoping to tap the groups expertise on explaining/guiding me on financing options. I'm looking to by a 4-plex property outside Pittsburgh for about $220K, and am confused about lending options.

I'm 41 and have a successful career thus far in the Investment Banking space. So i have pretty sizable personal assets, along with a relative high income. Due to my personal assets, i really need to have the Loan under a newly created LLC for liability protection. I also am fine closing my purchase in cash, and refinancing shortly thereafter (or even down the road in 6-12 months).

So for my questions:

1) I've spoken with some mortgage brokers- they all seem to charge a lot of upfronts and are telling me I need to do a DSCR loan. Is that really the only option available via a mortgage broker? Are there other options i should be asking for?

2) I haven't yet reached out local banks, but seeing the quotes from brokers makes me wondering if Banks may be better? I'm fine if things get drawn out weeks/months, and would not mind building personal relationships with Banks. But I'm wondering if the LLC loan is a no-go for banks.

3) Last question- i'm seeing rates on DSCR loans in the 7.2% to 7.5% range, in addition to 1 to 2 points and they likely track 10 yr treasuries (4.26% as of today). Is a roughly 3% premium to Treasury's typical for a commercial/DSCR loan?

Many thanks for any insights & guidance.

Tim

[Robin Simon]

Quote from @Tim W.:

Hi All,

Was hoping to tap the groups expertise on explaining/guiding me on financing options. I'm looking to by a 4-plex property outside Pittsburgh for about $220K, and am confused about lending options.

I'm 41 and have a successful career thus far in the Investment Banking space. So i have pretty sizable personal assets, along with a relative high income. Due to my personal assets, i really need to have the Loan under a newly created LLC for liability protection. I also am fine closing my purchase in cash, and refinancing shortly thereafter (or even down the road in 6-12 months).

So for my questions:

1) I've spoken with some mortgage brokers- they all seem to charge a lot of upfronts and are telling me I need to do a DSCR loan. Is that really the only option available via a mortgage broker? Are there other options i should be asking for?

There should be other options, however with an LLC and fourplex - yes, DSCR is by far most likely to be your best option unless you do the heavy lifting with local banks and credit unions (and these are increasingly not great options for this type of stuff as they move painfully slow and are under lots of regulations and restrictions)

2) I haven't yet reached out local banks, but seeing the quotes from brokers makes me wondering if Banks may be better? I'm fine if things get drawn out weeks/months, and would not mind building personal relationships with Banks. But I'm wondering if the LLC loan is a no-go for banks.

You can also go straight to the source - Direct DSCR Lenders - don't necessarily need a mortgage broker to shop for you (especially if you are here and asking the right questions and clearly are sophisticated - unless you are SUper-strapped for time, you don't seem like an investor that needs to pay a broker for help - go straight to the lender)

3) Last question- i'm seeing rates on DSCR loans in the 7.2% to 7.5% range, in addition to 1 to 2 points and they likely track 10 yr treasuries (4.26% as of today). Is a roughly 3% premium to Treasury's typical for a commercial/DSCR loan?

DSCR Loans are generally tied to the 5 year treasuries (granted not much of a diff) - and yes, spreads are a little elevated recently but that is good rule of thumb 2.5%-3% over.  However, DSCR Loans have more flexibility and levers to pull such as slapping on prepayment penalties if you are planning for long-term hold that can move rates down.  Low 7s is probably the right range right now, however we are still funding a good amount in the sixes range right now as well.
Many thanks for any insights & guidance.

Tim