Cash Out ReFi or 1st Time Commerical Loan

[Walli Miller]

What financing options are best?  I have a rental property with over $200k in equity the current loan is at 3.5% with about 16 years left.  I have the opportunity to own 3 buildings with two units each. (3 duplexes) I was going to do a conventional loan but since there are 6 units I'd have to go the commercial loan route. (So I was told.) The problem is that the loan would be for $240k and apparently, that's low. So what are my options?

Here are the numbers: 

Rental property 1 = $525k value, $203k left on the mortgage

Rental property 2 = $375,000 seller is asking the 3 duplexes

1)CashOut Refi the first rental property and take out $200k? New loan terms would be 4.5% for 30 years 

2) Refi the first rental property and take out enough to buy one of the buildings in cash and get a conventional mortgage for the other two buildings

Any other suggestions? This isn't really a BRRRR as there will be minimal renovations or updating.

[Eric Johnson]

Are those 3 buildings on separate parcels? If you got 3 loans (one on each property) that wouldn't be considered commercial. The only way that would happen is if the lender put a cross collateral note in place (which would blanket these properties). 

You can put all 3 under contract at once, but have a separate loan number on each (and go with the same lender, just tell them there are 3 closings for you). 

The main question is how are you qualifying? It sounds like you are going to use personal income to qualify. It would be best if you just got 3 conventional loans, assuming your DTI is still in check. However, the seller will just have to a sign a separate contract value to each of the three duplexes (thus 3 paper contracts, one for each property). Then you run 3 sales contracts, 3 loans, 3 closings. I don't see a need to go commercial here.

Also, I assume with these new acquisitions, you will be making more than 4.50% return, which will mean, it's probably a decent decision. 4.50% rate on investor refi's/equity isn't bad. People who are getting 3.25%-3.75% are usually paying at least 1.50% discount points to get the rate that low (which is now cost to make up). 

Perhaps I've said enough !  Good luck !