Rental Property Investor · Olin, NC · Member since 2019 · 43 posts · 11 votes
Im am looking at a 10 unit apartment property for my 1st multifamily. It is near a good college,only 30mins from me, and is below market rents. I have a LOC on some land I own clear, and I plan on using it for the down payment, then use some cash to make over the units. My problem is that the type of credit on my land has to be zeroed out every 12 months. One bank I talked to requires 2 yrs before they will do a cash out refi. Is this the standard seasoning peorid on commercial loans? Or do I need to find another bank?
Real Estate Lender · Jacksonville, FL · Member since 2015 · 86 posts · 51 votes
6y
Typically I see 2 years as pretty standard from my lending partners. They are also getting more strict on this and some are requiring longer periods before allowing a true LTV not LTC constrained cash out. The reason is they do not want to cash out (on value not cost) somebody that has not created "value" and is trying to cash out because they are getting a cap rate lower based on nothing more than the hot market.
Typically I see 2 years as pretty standard from my lending partners. They are also getting more strict on this and some are requiring longer periods before allowing a true LTV not LTC constrained cash out. The reason is they do not want to cash out (on value not cost) somebody that has not created "value" and is trying to cash out because they are getting a cap rate lower based on nothing more than the hot market.
Thanks for the reply. I do have alot of room for rent increases on all of the units, as they are well below market. Also, owner is paying for electricity on 2 of the units, and all water and sewer, so there is room for lowering expenses also. I definitely think with some updates and management changes this is a good starter valve add for my wife and I to get into the multifamily business.
Real Estate Broker · Dunedin, FL · Member since 2015 · 74 posts · 43 votes
6y
Have you thought about financing the rehabs? Talked to a commercial lender yesterday and this product is available. Save the credit line for something else, maybe another deal, and use your cash for the down payment.
London · Member since 2019 · 722 posts · 386 votes
6y
Shop around and get to understand the lenders better. Cash out refinancing on a commercial property is different than SFR. They want the rent roll to season so they can see that the rents are stable at a level before they will lend on that income stream. Hence the 2 years. It is more about how consistent the rents are than exactly 2 years. Commercial lenders are really lending on the income stream and not on the structure. The structure only has value because of the current and projected income stream.
Look for a portfolio lender who can advise you on which of their products are best. They may have a loan program that will work by cross colateralizing the land and the 10 unit property. Or, they have a purchase product with a draw down facility if you complete some refurbishment.
I would not be in a rush to buy until you have figured out your loan options. If you fail to clear the 12 month loan secured by a lot, you will face a foreclosure. That will kill any refinance on the 10 unit property.
If you're just starting out I suggest you reach out to a mortgage broker. While you'll have to pay for the services, these folks can help you significantly cut the time spent on searching for a loan and can assist you finding what you're looking for!
Have you thought about financing the rehabs? Talked to a commercial lender yesterday and this product is available. Save the credit line for something else, maybe another deal, and use your cash for the down payment.
Yes but i dont have 100k DP liquid at this time. I did but i bought my last rental property cash. I have 100k equity in it but it is a Doublewide home so banks ive talked to won't use ut as collateral. I had to buy it bc it boarders my property and the renters the po's had in there were terrible, and they were going to run my renters off in another property I have next door.
Shop around and get to understand the lenders better. Cash out refinancing on a commercial property is different than SFR. They want the rent roll to season so they can see that the rents are stable at a level before they will lend on that income stream. Hence the 2 years. It is more about how consistent the rents are than exactly 2 years. Commercial lenders are really lending on the income stream and not on the structure. The structure only has value because of the current and projected income stream.
Look for a portfolio lender who can advise you on which of their products are best. They may have a loan program that will work by cross colateralizing the land and the 10 unit property. Or, they have a purchase product with a draw down facility if you complete some refurbishment.
I would not be in a rush to buy until you have figured out your loan options. If you fail to clear the 12 month loan secured by a lot, you will face a foreclosure. That will kill any refinance on the 10 unit property.
Time to do your homework.
I can always borrow the money from my parents to clear my equity line out for a couple weeks, and then pull it back off if need be. I definitely wouldn't even consider a foreclosure. Im thinking of selling some farm equipment I have to pay the equity line off completely if I go this route. That would allow me to have the line open for other properties. Im definitely going to do my homework.
Still learning on how to scale up on properties. I really have a desire to go the multifamily route and being so near a great college will really help this property. From the investigation ive done so far, it seems that the current owners inherited the property and just haven't raised rates in years.
London · Member since 2019 · 722 posts · 386 votes
6y
Josh,
Spend some extra time speaking with a local bank, competent mortgage brokers, and other institutions. You can even speak with the commercial real estate brokers as they will know who the lenders operating locally. If you have a friendly banker who has financed other things, ask them who they would recommend. Bankers know other bankers. More so when their firm does not offer something their clients need.
It sounds like you are in an OK place so far (extra assets, etc). Finance will be key longer term so go do your homework.
If you're just starting out I suggest you reach out to a mortgage broker. While you'll have to pay for the services, these folks can help you significantly cut the time spent on searching for a loan and can assist you finding what you're looking for!
Im pretty sure I can't ask for recommendations on here per forum rules correct? If so, could you message me if you can recommend any?
@Josh Taylor I occasionally come across lenders that will do a bridge loan of up to 24 months on Multifamily and Commercial properties. Flipsimpli is who comes to mind.
Apartment Syndicator · Charleston, SC · Member since 2016 · 973 posts · 728 votes
6y
@Josh Taylor there is not a standard seasoning period. You should call 10 to 20 local community banks or credit unions and find one that will work with you