1031 to 8 unit multifamily: low-risk financing

[MC Campbell]

I've learned so much lurking over the years and I'm very grateful for all the wisdom here. I couldn't find the answer to my specific question in the forums.

My husband and I have just 3 small rental properties (duplex, condo, and townhouse). We have always bought off the MLS because we are not well-connected people and don't buy frequently enough that anyone wants us on their investor lists (right?). We are well behind on our original investment goals and have bucked up to finally 1031 exchange our duplex in St. Pete into one 8 unit multifamily in Ohio or Illinois. (We have run the numbers and have a list of prospects.) After reading about titling requirements, DSCR loans, CMBS loans, and being told by a large non-QM lender who has something for everyone, "Sorry, we have no products for you," I'm getting nervous.

Plan: Duplex has no mortgage and the estimated sales price based on comps is $420,000. Using Dave Foster's excellent 1031 calculator, that gives us ~$386,000 to invest as the down payment on a class C 8 plex from our list of prospects. We understand it would be even better to get an LOI signed during the sales process of the duplex. The replacement properties range in price from $500,000 to $689,000, are stabilized, older rebabbed buildings, and are in cities in residential or commercial areas. My concerns are:

The mortgage anount we'll need is small, but the product type still has to be commercial fixed rate and 15 years minimum. There is no way we are going to do any balloon loans because we don't want to hope and pray that we can find a lender who will refinance before the term is up. How do people actually gather the capital to pay those up when due if they can't refinance?

What kind of lender is going to fund what we want? I know that small regional banks are more likely to take those on. We have credit scores greater than 800, only ~$26,000 of mortgage left on our other two rentals, and I know our primary residence isn't taken into account. The big government loans have minimums we don't meet, DSCR and CMBS loans have higher rates, and conventional won't be allowed, right? This is our big question. Is it time for us to dial for dollars? I personally would prefer to shoot for a higher value replacement property but my husband is worried about the financial risk and the equity in our other rentals is only about $360,000, so it's not really an option anyway.

Thank you for any advice.

[Eric Gerakos]

Keep in mind that a C class 8plex can look great on paper but end up being a money pit with negative cash flow. Always consider who your tenants will be. Best of luck.