Shopping for mortgage on 5-8 unit multifamily

[Simon Hernandez]

Hello everyone, I'm about to go under contract on an SFR that I'm 1031ing out of. I'm looking at purchasing something in the 3-8 unit range. Multiple SFRs so I'm comfortable with residential loans, but if I find something in the 5-8 unit space I've no frame of reference with which to analyze the numbers. Assuming previous SFRs but first time MFR, no issues with DTI/credit score/etc and 25% down, what kind of terms should I be expecting, broadly speaking? I'd prefer a fixed rate if it was offered at 15+ years.

Thanks!

[Michael Albaum]

Hey Simon, welcome (potentially) to the MF commercial space. Qualifying for commercial financing is actually easier, in my opinion, since the lender will be looking more toward the property itself to carry the debt service, as opposed to you as the individual.

The biggest difference you'll see with commercial products are in the terms. Typically they are amortized over 25 years, as opposed to the traditional 30 years with residential. Additionally, most commercial loans that I've seen and used have a shorter fixed term, i.e. 5 or 10 years. After that period the loan adjusts to whatever prevailing rates are. And just like in the residential space, the longer the fixed term, the more expensive the interest is (typically).

I've worked with US Bank a bunch and they've been pretty great to work with and aggressive on pricing. 

I'm sure there are tons of webinars here on BP that talk all about how to run the numbers on a MF building. It's pretty similar to SFR, but obviously there are just some additional line items. Let me know if you need some more help!

Cheers