multifamily / commercial loans terms

[Ben Daniel]

HI,

My name is Ben, and I have a small portfolio of 12 (8 SFH+4plex) units I purchased in the last 2-3 years.

I plan to buy multifamily 8-16 units by the end of the year; my budget is up to $1.2M.

I never apply for a commercial loan, and I have no idea where to start. Do I need to form an LLC before I have a deal, what are the terms I need to expect, like # years, common rates %, LTV for commercial?

Any tip will be helpful.

Thank you in advance

[Marty Johnston]

@Ben Daniel Lots of good answers here. Everyone's right. In short, I usually recommend the following:

First) 

• Check with local banks and credit unions, they'll usually offer the highest LTVs at the best terms, lowest closing costs (albeit a 25-yr term is most common with these guys)
• If going this route, most will do a Global DTI and require: PFS, 2 Yrs Personal & Business Tax Returns, SREO, Previous Year and YTD Profit & Loss, Balance sheet on entity (if seasoned), 2 Mos Bank Statements, Rent Roll, Pay stubs, T-12 Financials on property

If the above isn't gonna be a fit, then:

• You can pursue the "Secondary Market" lenders. These lenders are closer to Asset Based Lending. No Tax Returns, P&L, Balance Sheet, Pay Stubs etc. All these lenders care about essentially is the asset (good location, Debt-service-coverage-ratio [DSCR], Value per door/unit, value). Much less documentation, but rates in the 4-7% range. Most of the time rates will start at 5% with rate buy down options into the low 4's

Here's what cool about these lenders.. 4-7% may sound high compared the to 3.25% from the local bank or credit union, but here's something most people over-look. Most Bank or CUs cap at a 25-yr amortization. The secondary market lenders almost all offer 30-yr amortizations, so even at a 5% rate, your monthly payments are very comparable (if not less!) With 2:1 rate buy down options, it's a no brainer to buy your rate down into the low 4's if you intend to hold the property for 3-3.5 years (break even point). These lenders close faster, less docs/headaches [usually] and are where many investors prefer to go.

To take it up a notch, if Cash-Flow is your primary concern and the name of the game, then there are also options for Interest-Only, through a 'Hybrid' term product. Interest-Only for the first 5-10 years and the converts to a fully amortizing 25-20 yr Amortized loan (30-yr term, no balloon). This makes for killer cash-flow which allows for faster growth of your portfolio when re-investing the difference.

Hope this helps! Show me a DM if interested in chatting more about this.