Finance Options for 4-plex

[Chi Sastry]

Hi BP- 

buying my 3rd multi-unit property.

I’m putting a contract on a 4plex

I’d like to understand which financing option is better:

Option 1 - Residential loan- 7.99%, 30 yrs, 25% down. 3 points at closing plus 2% closing cost. monthly Mortgage is ~ 1800 Under my name.


Option 2- Commercial loan. 7.75%, 20yrs, 20% down. 5 year balloon payment. 1% for closing. No points.
monhtly mortgage is ~ 2100. Under LLC

Option 2 is 13K less for closing. But also lower cash flow every month.


Any other suggestions on how to analyze the deal. I’d like to use the 13k to buy another property. But don’t like the 5/20 or the lower cash flow.

Thanks!!

[Caroline Gerardo]

@Devin Peterson self sufficiency test is only for FHA. conventional just loosened up down to lower down payments for 3-4 units so that's super wonderful. However the property still needs to not be losing money which is a difficult goal to reach with rates so high.

Get an insurance quote NOW. The PITI needs to be exact, not a guess.

5 points for conventional is crazy, and the tiny lower rate difference makes zero sense. Get that rate up a bit to 8.25 and the total points and costs to 2 or 3 and only do a 30 year loan. Conventional is going to save money in the long run as you are not forced to sell or refinance in the future. You have no idea what your income or FICO  will be in five years, God willing it's better but we cannot be certain. If the numbers work you can put less down on conventional today.

The commercial loan amortized over 20 is a higher payment- look at the amortization schedule and see where the principle balance will be in 60 months. You will pay loan fees a second time to refinance so add 2-3% of the balance at month 60 as the extra loan cost in your upfront comparison. I don't know commercial lenders who offer 1 point 7.75 so that seems unrealistic to tell you you can close on that is a dream. Get that 7.75 1 point deal in a commitment letter today.