How would you fund the debt on this deal?

Question

I've got an opportunity to buy eight 4-plex buildings (all in the same development, but not right next to each-other) for ~$2.1M. I've talked to commercial lenders and they wont do it. Its time consuming and messy to do it with 8 conventional loans. Is there a middle space here? Are there lenders/loans that will cover multiple residential-multifamily buildings in the same development?

Scott Schultz · Answer

Fannie Mae has a Small balance program up to $5 Million, they also have a scattered site program so you can treat residntial like a multi family when locations are not all adjoining. you will need an experienced multifamily lender that understands these programs.

There must be another reason the Commercial lenders you spoke with wont touch it, either the bank is not interested in the type of asset, the deal isnt that good, or they dont like your situation. remember its not always you or the deal, every bank has a plan of what they want on their books, and it can change as well. I know lenders that dont want any residential real estate on the commercial  side one time, but other times cant get enough of it. shop some more and you will find them.

I suggest having a good plan to present, be thorough at your meeting, Have 3 years taxes, a PFS, a layout of your past projects and outcomes (success and failures if any, it shows you are humble and how you deal with problems) and your plan for this asset, and BE CONSERVATIVE, never puff the numbers, if you need to puff the numbers to make it look good, its not a deal worth doing!

@Jonathan Marcus Just because a property fits in "residential" doesnt mean you have to finance residential, most of my Single family and duplexes are on "commercial" notes because of my low balances and ease of doing the loan sometimes it just makes sense.

Jeremy Holcomb · Answer

You could use a hml or a bridge loan and then refinance into a portfolio loan.

Ryan D. · Answer

Jeremy, the loan is the better part of $2M, so 2% difference on the rate is a decent chunk of money.

I'm trying to avoid a portfolio loan for this exact reason, though yes, in general, the market has gotten Very competitive over the last 12 months. I used to be able to pickup 1 or 2 buildings a year, never any bidding wars, etc. Now I'm making multiple offers weekly and loosing out to buyers willing to bid cap rates down into the 5 range.

Nick Rutkowski · Answer

@Ryan D.

Depending on the condition of the property you could go Hard money and refinance into a portfolio loan. If the buildings are in good shape and you can get them for a decent price then I’d skip the hard money.

Jonathan Marcus · Answer

Which goes back to the problem you asked, because they're not close together a commercial lender does not want to touch it. This leaves you with a residential lender/portfolio lender. You may also want to try going to a Credit Union.

All the best.

Brock Mogensen · Answer

@Ryan D. I'm located in Wisconsin and don't have any connections in CA, unfortunately.  They most likely have stricter qualifiers in CA compared to WI so that may make my statement untrue.

Jeremy Holcomb · Answer

@Ryan D., That’s a tough market when 2% can kill a deal like that. Make sure due diligence is really thorough. Because if there is any hidden surprises it could eat more than that 2%.

Ryan D. · Answer

@Jonathan Marcus 1-4 is residential yes, but if you have sufficient number of them all next to each-other (adjoining parcels) then you can get commercial paper against the package. These unfortunately are not adjacent, though they are in the same development.

@Jeremy Holcomb Portfolio loans are in the mid 6% range now...commercial is ~2% lower, which is why we went there first. The deal wont work at higher than ~5% (at least not for us).

@Brock Mogensen do you have any specific recommendations? I've called a dozen or so local banks with no luck.

Tarik Turner · Answer

You should be able to get a portfolio loan at 75% to 80% ltv on the purchase

Brock Mogensen · Answer

Reach out to multiple commercial lenders.  There will be one that is willing to do it.  Try the community banks that loan those type of properties.

How would you fund the debt on this deal?

Most Popular Reply