5 Unit+ MF Cash Out and refi restrictions - BRRRR

Multi-Family and Apartment Investing
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5 Unit+ MF Cash Out and refi restrictions - BRRRR

Jay Norlund
Member since 2019 · 10 posts · 5 votes

Calling all experienced mid range multifamily investors and especially lenders! I haven't been able to find a thread that discusses this in the detail that is as helpful as a few threads have been on 1-4 unit BRRRR strategies.

I had a deal negotiated for two triplexes on one parcel that ultimately fell through but had me doing enough research to realize most of the info out there is generic. So, what issues, rules and restrictions are there for the mid-range of multi-family (5 to say 12 units)?  I know a lot of people rely on cash out refinancing larger multifamily as a strategy but in trying to get financing for the deal and rehab, I came across a lot of issues.

Some questions to get us started (feel free to add your own questions and advice, I would love this thread to be a main place people can go for info on these types of properties):

What issues are there for getting cash out of a commercial loan with rehab costs (whether separate or rolled in)? Timing, LTV restrictions, etc?

When using seller financing, what terms apply for the refi? 12 month wait? Other issues?

How does using a bridge loan or interest only for the rehab portion affect the eventual refi?

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John Warren
Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
7y

@Jay Norlund I am in the middle of a BRRR deal in Cicero, IL. The property is a 6 unit, and it has been very challenging to find a bank that will do a cash out refinance of 75-80% of the ARV. I need 75% to get all of my cash out, but most banks want to lend 75-80% of my LTC (loan to cost). That would end up leaving 20-25% of my money in the deal. The only work around for this is to hold the property more than one year, but my term on my hard money loan is up at 1 year.

If I could do it over again, I probably would have pushed harder to use a construction loan with interest only. One of the lenders I work with would allow me to do a regular 5/25 commercial loan for 75% LTV, but would include 6 months of interest only. That would have juiced my cash flow a bit more.

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  • John Warren
    Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
    7y

    @Jay Norlund I am in the middle of a BRRR deal in Cicero, IL. The property is a 6 unit, and it has been very challenging to find a bank that will do a cash out refinance of 75-80% of the ARV. I need 75% to get all of my cash out, but most banks want to lend 75-80% of my LTC (loan to cost). That would end up leaving 20-25% of my money in the deal. The only work around for this is to hold the property more than one year, but my term on my hard money loan is up at 1 year.

    If I could do it over again, I probably would have pushed harder to use a construction loan with interest only. One of the lenders I work with would allow me to do a regular 5/25 commercial loan for 75% LTV, but would include 6 months of interest only. That would have juiced my cash flow a bit more.

    1Reply
  • Michael Ablan
    Real Estate Broker · Watertown, NY · Member since 2016 · 1k+ posts · 1k+ votes
    7y

    @Jay Norlund -  It all comes down to your lender.  I found a commercial lender who has will fund 100% of my rehabs, has 0 seasoning requirements, and will lend on anything that's a good deal.   You just have to keep interviewing lenders until you find someone who can give you what you want

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  • Jay Norlund
    OP
    Member since 2019 · 10 posts · 5 votes
    7y

    Good stuff. I'm hoping we can get some Commercial brokers or lenders to chime in as well.

    0Reply
  • Stephanie P.Pro Member
    Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
    7y
    Originally posted by @Jay Norlund:

    Calling all experienced mid range multifamily investors and especially lenders! I haven't been able to find a thread that discusses this in the detail that is as helpful as a few threads have been on 1-4 unit BRRRR strategies.

    I had a deal negotiated for two triplexes on one parcel that ultimately fell through but had me doing enough research to realize most of the info out there is generic. So, what issues, rules and restrictions are there for the mid-range of multi-family (5 to say 12 units)?  I know a lot of people rely on cash out refinancing larger multifamily as a strategy but in trying to get financing for the deal and rehab, I came across a lot of issues.

    Some questions to get us started (feel free to add your own questions and advice, I would love this thread to be a main place people can go for info on these types of properties):

    What issues are there for getting cash out of a commercial loan with rehab costs (whether separate or rolled in)? Timing, LTV restrictions, etc?

    When using seller financing, what terms apply for the refi? 12 month wait? Other issues?

    How does using a bridge loan or interest only for the rehab portion affect the eventual refi?

    Jay

    It all depends on the amount income documentation you are willing to provide, how the guarantor's credit is and the amount of cash you have.  Once you're past those, the property has to be acceptable to the lender.  Some do warehouses and industrial buildings and others only do multi family.  Some require at least a million dollar loan amount so they can sell it to Fannie/Freddie and others are true portfolio lenders and will go down to 100K.  It all depends on the lender.  Find yourself a good broker that has access to different lenders and interview them. Ask them questions and see if they will be a fit for you. They should be able to tell you where you fit into the Plinko board that is commercial lending.

    Best of luck

    Stephanie

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  • Syed H.
    Developer · NY/NJ/PA · Member since 2018 · 758 posts · 935 votes
    7y

    The “norm” for most banks is 6 months seasoning. They shouldn’t make you wait a year. 

    It should be 75-80% of appraised value.

    Keep calling lenders. A lot of banks aren’t really in the business of lending to investors for MF. They all say they are, but truly aren’t. 

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  • Jay Norlund
    OP
    Member since 2019 · 10 posts · 5 votes
    7y

    Thanks for the comments. I am also seeing that Commercial lending seems to wildly vary.  Would love to hear more tales from those with 5+ units who tried/got financed.

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