what would be typical terms for a commercial loan on a 8 plex?

Question

"8 Plex. Each Unit Is 1 Bd, 1ba That Rents For $650 A Month. Wood Floors Throughout. Utilities Are Separately Metered. Owner Furnishes A Washer And Dryer For The Use Of All The Tenants. Gated Parking Lot With 8 Spaces. New Wiring And Upgraded Plumbing Done In 2006. Looks Real Good Structurally. Owner Has Architectural Drawing To Convert Building Into Office Space."

asking price is $420,000

are loans available relatively long term with no balloon?

asking price is $420,000

are loans available relatively long term with no balloon?

Matthew Saskin · Answer

Exactly.  For any loan (although mostly applicable to commercial) there are really three factors to consider:

1 - Amortization period.  Over what period of time are the Principal & Interest periods calculated (eg; 15 year?  20 year?  30 year?)

2 - Loan term.  Just because a loan is a 30 year amortization does not mean that it will be a 30 year term.  Case in point, the loan I referenced above (20 year amortization/6 year term) means that payments are based on the 20 year amortization schedule, however the loan is "up" a 6 years, meaning either a balloon payment is due or I have to refinance before that.

3 - Rate.  Interest rate - fixed or variable, and if variable, how soon and frequently does it change and what does it change based on?

For this particular loan, I neglected to mention that I pre-negotiated a guaranteed renewal/refinance at prevailing market rates, so basically, this loan can better be viewed as a 20 year amortization/TBD term/"variable rate" with the first adjustment (from the initial 4% to prevailing market rates)  occurring at the 6 year mark.

Make sense?

Mark Mosch · Answer

You need to find a local community bank to get the best terms.  Someone like Wells Fargo or B of A has a lot of stringent rules they need to follow, but are a pain to get anything done with.  The smaller guys are a little higher in interest rate but usually can get the deal one.  You will most often have a 20 or 25 year amortization, due in 10 years.  Your rate on something small like this would probably be 4.9-5.5%.  I would expect them to ask you for 25-30% down.

Steve Vaughan · Answer

My 3 commercial loans are 15-20yr am, 5-yr call (they have the right to call it due but haven't) with 5yr interest rate adjusts, based on some NW lending index.   They are currently at 5%.    I also have to submit a personal financial statement and tax returns annually.

@Jordan Williamson the reserves on mine were 6 months' PI pmts on the specific building lent and a net worth of 2x appraised value, from what they said.  I submitted my personal financial statement and all they said was 'looks good'.  Who knows, right?

John Cohen · Answer

@A.J.  Chesney

The multifamily space is really hot right now, but you can still get great rates from local community banks or even the larger banks.

I would say typically right now:

Term: 5,7,10

Amortization: 20,25,30

Rate: 4.3-5% (Stable deal good occupancy)

I just closed on a 48 unit, 13 vacant apartments (6 down/7 light turns), got a 75% LTV, 5.25%, 6 year term, and 25 year amortization.

Michael Leffelholz · Answer

The 8 family puts you into the commercial space. In the multifamily sector I routinely see loan terms of 7-10 years with amortization based on a 30 year schedule. Rates currently are often sub 4% maybe low 4% range. Banks will lend up to 75% LTV. More often than not the loans will be non-recourse with the Borrower being a LLC. As @Derek Carrollstated the loan size is small and lot of banks will not be interested.

Jordan Williamson · Answer

What are the typical requirements for reserves and personal net worth etc?

Derek Carroll · Answer

@Matthew Conti most banks will want to refinance you when the term is up so long that you have been a good customer. The banking business is base on short term money, which is why they can't lock in for longer periods. When your loan comes due they're usually happy to Refinance. Many simply extent the loan or reset rate with out doing another closing.

Down payment can come from any sources but you need to show some reserves and net worth. Experience with the product type helps as well. First Property? Banks might require a third party management company.

Derek Carroll · Answer

once you get into commercial you're almost always going to be looking at balloon term loans. It's just the nature of the business.

FHA and some life insurance companies have self amortizing (no balloon) loans but not available on loans under $1m

Commercial loans between $100k and $2m are a tough market. The larger lenders don't want to do them. That leaves you with community banks and credit unions.

Once you start looking at the larger loans you're best suited to use a mortgage banker. This is what I do. For example there are certain loan products that are only available through mortgage bankers, life insurance companies and the agencies (Fannie, Freddie , HUD). You also gain access to the CMBS market.

The standard "bank" product is a 5 year loan with a 20 year amortization. However you can get much better with a little shopping around or using a broker. Many banks will go 7-10 years or even longer. 25 year amortization are available, sometimes 30.

I work on over $100,000,000 in financing per year. Happy to answer any specific questions you may have.

A.J. Chesney · Answer

yes, thanks for breaking it down

what would be typical terms for a commercial loan on a 8 plex?

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