What type of multi-family loan should I apply for?

Question

I own a 6-unit building free and clear. I bought and did a gut rehab about 10 years ago. I want to take cash out to make minor repairs and consolidate debt in advance of selling the property before end of year. Would this be a bridge loan, fix and flip, or some other animal?

Account Closed · Answer

A DSCR loan is a great option. Definitely talk to a few different lenders and compare offers. Costs on a DSCR can be expensive, and some lenders require a prepayment penalty. If you are planning on selling the property in the near future, look for low origination fees and no prepayment penalty.

Devin Peterson · Answer

The beautiful animal you are looking for is a DSCR cash-out refinance. Utilizing this type of financing will enable you to utilize the current income of the property to qualify. No personal income, taxes, employment, etc. necessary. Self-sufficient asset-based program. Cash-out up to between 70-75% of the current value of the property. I would recommend shopping with a well-versed investor-focused broker to get the best terms and options out there.

Sasha Mohammed · Answer

if for sure you intend to sell in a year or two, i would look into bridge financing. it will be more expensive on rate more than likely, but you avoid the prepayment penalty, and the payments are uuuuusually interest-only.

if you think you might change your mind and keep it for a while, DSCR is not a bad option, but i would look into Freddie Mac SBL. those rates are still in the 6's and 7's, albeit a bit tougher to qualify for... but even on sale, it could open you op to a seller-financing option if that behooves you.

or for easier qualification, there are lenders that will do a 30 year fixed DSCR and you can still buy-down the PPP to 1 year. then you have best of both worlds - short PPP but the option to keep if you change your mind on sale.

Jeffrey Blackman · Answer

@Erik Estrada, prepayment penalties are definitely something I will discuss with each lender as this is a short-term cashflow need brought on by multiple family emergencies. The building is fully occupied.

Billy Daniel · Answer

Great responses here! I recommend you take your question to a couple of local commercial lenders and see what they can do for you. We can speculate all day long, but the reality is the lenders will have many different variations of each type of loan that may make them fit your exact needs.

Erik Estrada · Answer

Hey Jeffery,

If you plan on selling this property before the end of the year, a bridge loan would work best.

Longterm DSCR financing and Commercial financing have prepayment penalties. If you were to sell before the end of the year, you would be hit with a 5% or 3% prepay depending on the lender.

On a bridge loan, you are paying interest only, no prepay, and it's a 12-24 month loan. What is the occupancy % of the building now and do you own similar properties?

Brayden Hrycko · Answer

Hey @Jeffrey Blackman,

DSCR Cash out is where you'd like to be on this. There are plenty of lenders here that could help with that.

Jeffrey Blackman · Answer

Thanks Mike, this is helpful.

Jeffrey Blackman · Answer

Thanks for adding clarity here!

What type of multi-family loan should I apply for?

What type of multi-family loan should I apply for?

Most Popular Reply

9 Replies