Can I qualify for a commercial loan?

Question

So, here's the (literal and figurative) deal:

2 of my acquaintances have a pocket deal for me. It's a 4-plex in Baltimore with $3,430 gross rent and a NOI of $1,778. Asking price is $195,000. If I could find a 20-year commercial loan that would let me put 20% down @5% interest my monthly payments would be $1,030. That leaves me with $748 a month. So far, so good, but here's the catch.

I only have $15k max I can put into this property. My acquaintances are willing to subsidize the remainder of the downpayment, which, with closing costs, would entail them contributing ~$28,500. Their repayment terms are 5 years @10% interest with no penalty for prepayment which means I would owe them $538 a month. That leaves me with $210 in profit a month (well 610 really, but 400 a month is being set aside for repairs etc.)

With a profit margin that thin, is any commercial bank even going to talk to me? I would use a conventional loan, but one of the tenants is a business (barber) so I assume commercial loans are my only route. What course of action should I take?

Greg B. · Answer

Account Closed

Would he HAVE to get a commercial loan for a mix use property under 5 units?

I understand the commercial aspect of it but if the property in predominately residential then would that allow for a residential mortgage?

Jay Hinrichs · Answer

Account Closed  5% rate that is well un heard of .... for HML... that's cheaper than a bank.

how do you do that.. and how can you possibly make any money doing that.

do you charge up front fee's for a look see to see if you will do the deal?  or maybe charge 10 to 15% to you hit the 14 to 16% yield every other HML in the country strives for and lends at

Michael Marcoux · Answer

@Ned Carey, Jeff Beard, here's the kicker then: what per unit cost of repairs will banks use when calculating my NOI/DSCR? I'm budgeting $400 a month, but a cursory internet search reveals some banks ask as little as $250/unit/year. I don't assume that's normal though, it seems way to small...And I realize some (most?) banks won't approve private down payment assistance - so I have a lot of calling to do! :)

Pouyan Broukhim · Answer

the 5% down payment program is an owner occupied commercial sba loan program. It's a real estate combo with a business loan that's works out for an apr of 6-8% depending on your circumstances. Your business must be strong and it must occupy at least 51%+ of the property.

Gino Barbaro · Answer

@Michael Marcoux

Hi Michael

have you considered partnering with someone.  A bank will like the fact that there are 2 people personally guaranteeing the loan, and you may be able to get better terms, 25 yr amort, 4.25%.  I know it's only 50%, but 50% of 800 is better than 100% of ZERO.

I started out with a partner, and have been able to expand quickly in 3 years.  Just make sure you and your partner have  the same criteria and investing for goals

Gino

Rob Krach · Answer

@Michael Marcoux I don't know any bank that would give you a commercial loan on a 4 unit multifamily house, unless there was something that made it a commercial property, a 5th unit or a business / store of some kind.

If you want financing on this, you're going to have to go the conventional route or hard money. What Credit Unions or community banks are around you?

If you want specifics on the commercial loans a big bank would offer direct message me.

Cheers,

Rob

Jeff B. · Answer

@Rebecca Styer @Michael Marcoux;  Just to be clear, the rate for a commercial loan can be very competitive but almost always will be an ARM.  The buyer's down payment will always be the LTV requirement of the lender.  First time homeowner programs of 3-5% down only apply to owner occupied SFRs.

Jeff B. · Answer

Vacancies are typically 8-12% and capex or reserves are typically 10%, both taken against the GSI as additional Expenses to derive the NOI.  DSCR is derived from that and their mortgage.

Michael Marcoux · Answer

Sure, heck, some of my friends recently got a commercial loan at 3% if you can believe that (they added that it's easier to borrow 2 million dollars than it is to borrow 200k...) But getting a hard money loan at 5% is unheard of, which is what Frank was pitching.

Given that his goal is "creating a financing platforms as to enable the deficit agents in real estate get funded without no extra cost and waste of time" I'm gonna wager it's a scam.

Jeff B. · Answer

And the fundamental input to it is the NOI; true, the DSCR is the go/non-go number the bank will use.