Apartment building 10 year loan - standard?

Question

So I went to my bank yesterday and they said that they can qualify me for apartment building loan.

My problem is they said that the longest term of such loan would be 10 years/20% down. Now when run my numbers with that on any property 1M+ the monthly NOI covers only about 50% of my mortgage payment. I would have to stretch my loan to 20-30 years in order to have some monthly cash flow.

Is 10 years really a standard length of commercial loan?

Are there properties that would generate income that would actually covered mortgage payment with 10 year loan?

What am I missing here?

Joshua Davies · Answer

@Matt Dabek Hi Matt, commerical loan terms can be confusing if you have never heard of them.

The loan term maybe 5, 7, 10, 12 years, however the loan will be amortized over 20, 25, 30 years. This means that the loan payments will be based off a 20,25,30 year repayment schedule, however you will need to implement your exit strategy after the 5, 7, 10, 12 year term (whether that may be refinancing or selling the property) or the loan will be due.

Please feel free to reach out if you need more explanation on commercial loan terms.

Tarik Turner · Answer

You can still get a 30 year term product but if the 10 is amortized over 30 and it is fixed for the 10 years that is a decent loan product -(Depending on the rate)

Ed Matson · Answer

By the way, Fannie Mae has a low balance multi family loan with a 15 year term.  Find a good mortgage broker and see if you and your property are eligible.  The best deal I know of.  15 year term/30 year amm.

Ray Johnson · Answer

@Matt Dabek There are many factors that go into Apartment funding. Yes, a 10 year term will typically be the highest they will offer especially since we're in a rising interest rate environment, on year 10 your loan resets to a higher rate inline with rates 10 years from now.

What you're getting is this particular bank offer, most people will go with a 25 year amortization period, the cost and rate of the loans will vary depending on if you go with a 5/25, 7/25, or 10/25 term. Your IRR template should account for this rate increase in year 11, there should also be conservative rent increases to give you a better picture as to how this will look in year 11 when your rate resets to make sure it's profitable with a higher rate.

FYI - Commercial debt is insured differently that residential debt that's why there are no 30 or 40 year loans in the commercial sector like they have in residential, marketable commercial loans packages are only insured up to 25 years.

Matt Dabek · Answer

@Seth Williams

Thank you. I'll ask tomorrow.

Matt Dabek · Answer

@Simon Chan

Honestly I didn't think if loan is for 10 years amortization could be longer(?)

How does it work?

Seth Williams · Answer

It’s still a 20/25/30 amortization schedule, but you either have to refinance or extend the loan at ten years, it’s not a 10 year amortization. If it is, get a new lender lol.

Just ask them for the amortization schedule and term, I think you’ll have your answer.

Apartment building 10 year loan - standard?

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