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Updated almost 8 years ago, 01/03/2017
Commercial or MFH - what happens after the 7 yr fixed rate is ove
Read several times on here that people bought commercial or MFH and plan to hold 5-7 years...What happens if the market turns the other way and you can't sell, AND the fixed rate expires and you are now facing a higher rate?
I know people dont think about these things in a good market like today's... But what happened to those in the game back in 2008/2009? Did they all survived or wiped out?
@Daniel Y. @Saran Mandhadapu - This is a local lender, newish to the area that I invest in (actually a new institution as far as banks go) that currently only lends in Northampton & Lehigh counties. THe loan isnt costing me any points for the rate or terms, and the property that Im acquiring has extremely strong cash flow. The quoted rate initially was 4.75 but after sitting down with the branch manager with an overview (good written presentation) of the project he offered 4.6... who am I to say no? :)
What I found was the application was simple - meaning NONE! It was literally a 30 minute discussion about what Im doing, what Im acquiring, leaving a copy of the sales agreement and my financial statement... Ive filled out nothing, literally no paperwork! Within day I had an informal commitment letter, then the formal one within 7-8 days. Darn easiest thing Ive done in awhile.
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#1 Personal Finance Contributor
- Rental Property Investor
- East Wenatchee, WA
My 3-word 2017 goal is 'Retire Commercial Mortgages' for a reason.
Mine are all 20-yr max amort, 5yr rate adjust & call with annual 'show me your financials' PITA with local community banks.
Commercial property/hazard insurance is also not automatically renewed every year. My commercial policies are more likely to be cancelled EOY at the whim of the carrier. Had one last year that decided they no longer wanted to carry property over 25 years old. Gee thanks. Had to scramble to find a new provider and did, but my 11-yr claimless history didn't count as much with the new co and I now pay more for less coverage.
A lot of threads are about paying off debt vs growing/expanding. I've always differentiated between commercial and fixed l/t residential mortgages. Commercial has more risk. There are a lot of pros, but time and rate comfort is not one of them.
I liked the way my commercial apt bldgs performed vs houses during the great recession but there will be no love lost saying bye-bye to these commercial loans!
Originally posted by @Matt A.:
@Daniel Y. @Saran Mandhadapu - This is a local lender, newish to the area that I invest in (actually a new institution as far as banks go) that currently only lends in Northampton & Lehigh counties. THe loan isnt costing me any points for the rate or terms, and the property that Im acquiring has extremely strong cash flow. The quoted rate initially was 4.75 but after sitting down with the branch manager with an overview (good written presentation) of the project he offered 4.6... who am I to say no? :)
What I found was the application was simple - meaning NONE! It was literally a 30 minute discussion about what Im doing, what Im acquiring, leaving a copy of the sales agreement and my financial statement... Ive filled out nothing, literally no paperwork! Within day I had an informal commitment letter, then the formal one within 7-8 days. Darn easiest thing Ive done in awhile.
Thanks Matt. My property is in York County, PA. I will keep looking.
These are valuable experience getting shared here... definitely give me lots of food for thoughts as I try to venture into commercial after 10 years in residential.... totally different animals as I come to realize
Originally posted by @Steve Vaughan:
Commercial property/hazard insurance is also not automatically renewed every year. My commercial policies are more likely to be cancelled EOY at the whim of the carrier. Had one last year that decided they no longer wanted to carry property over 25 years old. Gee thanks. Had to scramble to find a new provider and did, but my 11-yr claimless history didn't count as much with the new co and I now pay more for less coverage.
Well, sorry to hear your experience, but once I changed to Farmers, I kept them and they stood by me over 15yrs.
When I started with the MFU, a local insurance broker started to play property manager and was requiring changes. I told him to "find your properties if you want to play PM - - take a hike!" and I went to Farmers. So glad I did.
Originally posted by @Matt A.:
@Daniel Y. @Saran Mandhadapu - This is a local lender, newish to the area that I invest in (actually a new institution as far as banks go) that currently only lends in Northampton & Lehigh counties. THe loan isnt costing me any points for the rate or terms, and the property that Im acquiring has extremely strong cash flow. The quoted rate initially was 4.75 but after sitting down with the branch manager with an overview (good written presentation) of the project he offered 4.6... who am I to say no? :)
What I found was the application was simple - meaning NONE! It was literally a 30 minute discussion about what Im doing, what Im acquiring, leaving a copy of the sales agreement and my financial statement... Ive filled out nothing, literally no paperwork! Within day I had an informal commitment letter, then the formal one within 7-8 days. Darn easiest thing Ive done in awhile.
Thank you for the reply. That is great on your end. Unfortunately, I am looking out of state so I don't have that exact opportunity as you.
Originally posted by @Diane G.:
Mark - but here is the thing... During 08/09, some of my properties were below what i paid for, but since I had 30 yrs fixed on them (I did refi a few time since then, but every refi is 30 yr fixed too), I did NOT worry at all... I knew what my expenses were and then it is just a matter of sitting thru the storm and waited out.... And it turned out to be exactly that... everything is 2X of what i paid for now....
BUT, had I not had 30 year fixed, had my had to switch into a higher rate and get my expenses out of control, or not able to refi at all, I would have been wiped out...
That is the risk I see with commercial, and that aspect of it scares me off... Am I overthinking this?
No such thing as over thinking when it comes to this much money. If anything I'd be worried if you thought LESS. I think you raise a very valid point. I too am hesitant with MF as it seems very difficult to determine what the actuals are vs proforma. Lot's of people trying to dump ghetto complexes on unsuspecting buyers. SFH have been extremely easy by comparison. I can easily tell what my expenses will be, and what my income from rents will be.