Commercial Real Estate Loans Question.

[Granville L.]

Hey Guys and Gals

My husband and I have been in the rental business for about a year and a half. Within that time have purchased 10 homes to which several were purchased on a commercial loan. My husband works, makes a good living, and has a credit score over 800. I run the business and take care of two kids. I have built a friendship with my loan officer, so I have not sought out the rates of others. At the current time, our loans have been 7% / 5 year fixed / 15 year loans. They have given us unlimited amount of money, because when we rent a home it falls off our debt ratio. I was wondering if other commercial establishments are offering loans on the same lines or should I look for a better deal. I am in contract to purchase 3 more home within the next month, and we are aggressively growing.

Any advice would be much appreciated.

[Bradford Arner]

@Chris Winterhalter

I completely agree. As a mortgage banker who does exactly what Chris is speaking about, you are in fact far better to do the leg work yourself. Every deal takes the same amount of work regardless of the size. So, we as mortgage bankers are far more inclined to work on larger deals. In addition, smaller transactions are going to be placed with a local bank anyways. You should simply find out who is around you and walk into a local branch.

Building a relationship with your local bank is invaluable and competition is always a benefit for you as the investor.

As far as rates are concerned, 7% is currently far too high of a rate unless there are some serious issues with the property. I work exclusively in larger transactions so it may be slightly different on the smaller end of the deal scale but rates should be somewhere around 5 to 5.5% right now. Also, as @Colleen F. mentioned, with commercial transactions 70 to 75% LTV is the standard. Commercial real estate is different in that the property must, as a viable source of cash flow, gets the bulk of the focus rather than residential where the buyer is the focus of the underwriting. A small difference, but one that changes everything about commercial real estate finance.