Just did my first Deal and bought a 4 Plex! Need Advice Stat!

[Cindy M.]

Hello, This is my First Time posting, so guess I am a real Newbie!  Looking to my new Bigger Pockets Pro Friends for Advice and give me an honest evaluation of the way I went about it, so I am putting myself out there for comments on 2 parts... 

Listened to Branden and Josh podcasts...and said, you know what? I can do it!  Thanks!

Feels Great to be in the Game! OK...  

1. Just Bought a 4 Multifamily Rental Property closed in Sept., about 2 hrs from where I reside, but in another state (CT). This is a long term investment to hold and rent. Managing it myself to get and need the experience. It was all rented, good cash flow after all expenses paid, got a good price (needs TLC but not falling down, hey, its all rented) so I can rehab later (little by little), maybe do brrrr and my goal is to pay it off in about 5-7 years. Since I know the basics in small business, as I have had one for over 20 years, I saw this as a new business...so, I got an LLC for this property. Went to a local savings bank in CT and gave me a Commercial Loan under LLC @ 20% down for 20 years at 4.25%. Purchase: 133K Loan $106K, payment $767 + tax escrow will roll in in Jan., so payment $969. Can refinance will another lender after 1 year but will be a prepayment penalty of 4% then 3% etc., after my 5yr 0%. Which I thought it was OK b/c I should have it all paid off in 5-7yrs, hopefully.

Q. Did I choose the right Loan product ? Was commercial the right way to go for my first deal?

2. A tenant is moving out and I think it is a blessing in disguise actually, so all good!  Since all units need Rehab, and now tenant is moving out, it makes sense to do the whole unit while it will be vacant.  But Wasn't planning on doing Rehab this early (Its a Gut) so need a loan for up to $15-20K, figure I take a little more out...not sure what I am going to find behind those walls...

Q. For this Rehab, what loan product should i use and with what co., went back to my bank and they might give me a no interest loan for 6 months etc....but timeline might be tight...I am not sure how should I finance this?

Thanks in Advance for Your Help! 

[Andrew Kerr]

@Cindy M. Congrats on your first deal! That is a big step that very few get too.

As far as financing, its hard to say if it was good or bad. It really depends on what you look for, and for one person it could be great, and for another, it could be bad. 4.25% is pretty competitive as far as the rate. Most commercial loans seemed to be amortized for 15-20  years, so you are good there. If your hold time is 5-7 years at least, then having a 5 year pre pay isn't that bad. For me personally, I like flexibility, so I would have tried to find a loan with no prepay or maybe a one year pre pay. A good example of this is, I bought three properties last year, they were off market deals and below market value at the time. I bought them with the plan to hold for several years. But the demand for these college rentals has gone crazy, and the value has gone up almost 23% in 12 months from my purchase price, and would make me double my money in a year. Now here I am going from not planning to sell, to strongly considering a sale. 

For your second question - I would start with some analysis. What does it rent for now, and what would it rent for when fully renovated. I would also look at what it would cost to do minor repairs to get you another 3-5 years, and compare that to what it would rent for. Knowing this would let me determine what type of return I could get on that cash. I would use this to help with financing decisions. Next, depending on your credit, I would look at a simple line of credit. Wells Fargo does an easy, unsecured, personal line of credit. Then you could also look at Sofi, Prosper, and similar sites. These options usually have very little fees compared to getting a loan against the property and needing a title company and/or a real estate attorney involved. 

While the tenant moving out and needing to do the rehab sooner than expected, I like staging renovations on multi families across a few years. Renovate the units as the tenants move it, it means less capital all at once, and you get cash flow from the other units while the unit is question is being updated.