My 2 Options: Personal vs Commercial Loan

[Danny Lyu]

Hi All,

First-time poster here. I’m currently in the pre-approval process to purchase a 2-4 unit multi-family property. I’ve approached a local bank in Upstate New York offering a 30-year loan with a 10% down payment. However, the loan would need to be under my name, as they won’t allow LLCs.

I’ve received advice from others who feel comfortable with this arrangement as long as they have high insurance coverage limits, which the lender also recommended. Assuming the insurance premiums don’t significantly impact my cash flow (which is one of my primary goals), how do you assess the risk of taking out a loan under my personal name versus opting for a commercial loan that requires a larger down payment and comes with a higher interest rate?

My goal is to spread my funds across multiple investments to grow my portfolio while keeping my down payments as low as possible. At the same time, I prefer to minimize liability, though I’m not a seasoned investor.

Is this one of those calculated risks that investors eventually become comfortable with, or should I prioritize limiting liability from the outset?

Thanks in advance for your advice!

[Michael Ohara]

@Danny Lyu Hi, let's connect on this. Sending a connection request.

[Erik Estrada]

Quote from @Danny Lyu:

Hi All,

First-time poster here. I’m currently in the pre-approval process to purchase a 2-4 unit multi-family property. I’ve approached a local bank in Upstate New York offering a 30-year loan with a 10% down payment. However, the loan would need to be under my name, as they won’t allow LLCs.

I’ve received advice from others who feel comfortable with this arrangement as long as they have high insurance coverage limits, which the lender also recommended. Assuming the insurance premiums don’t significantly impact my cash flow (which is one of my primary goals), how do you assess the risk of taking out a loan under my personal name versus opting for a commercial loan that requires a larger down payment and comes with a higher interest rate?

My goal is to spread my funds across multiple investments to grow my portfolio while keeping my down payments as low as possible. At the same time, I prefer to minimize liability, though I’m not a seasoned investor.

Is this one of those calculated risks that investors eventually become comfortable with, or should I prioritize limiting liability from the outset?

Thanks in advance for your advice!

 You found a bank that will allow you to do 10% down on a non-owner occupied property?

[Colin LaReaux]

[Robin Simon]

Quote from @Danny Lyu:

Hi All,

First-time poster here. I’m currently in the pre-approval process to purchase a 2-4 unit multi-family property. I’ve approached a local bank in Upstate New York offering a 30-year loan with a 10% down payment. However, the loan would need to be under my name, as they won’t allow LLCs.

I’ve received advice from others who feel comfortable with this arrangement as long as they have high insurance coverage limits, which the lender also recommended. Assuming the insurance premiums don’t significantly impact my cash flow (which is one of my primary goals), how do you assess the risk of taking out a loan under my personal name versus opting for a commercial loan that requires a larger down payment and comes with a higher interest rate?

My goal is to spread my funds across multiple investments to grow my portfolio while keeping my down payments as low as possible. At the same time, I prefer to minimize liability, though I’m not a seasoned investor.

Is this one of those calculated risks that investors eventually become comfortable with, or should I prioritize limiting liability from the outset?

Thanks in advance for your advice!

At a high level, this is generally the path people take - we see a lot of people have success in this route - start building the portfolio with banks, low down payments, and then **generally** when you hit around 5 or so properties - it starts to make sense to switch over to LLCs, its too hard to qualify/deal with paperwork of banks and switch towards private lenders like DSCR Loans - (LLC friendly, easier) to scale past 5 or so. But when you can qualify and deal with the process before then - usually worth it to do bank options like this until you hit the scaling point (could be 3 rentals could be 5, could be 10 etc - no real "hard and fast rule")

[Nick Belsky]

@Danny Lyu

What bank is offering 10% down on an investment 2-4 unit property?  That is not likely unless there is more to this than what you are telling us.

Cheers!

[Patrick Roberts]

An attorney would be able to advise on risk mitigation via insurance vs an entity + commercial loan. I have consulted with a few attorneys over the past couple years regarding this and have determined that for my own personal situation, umbrella insurance provides sufficient risk mitigation for my situation at this time. I have a plan in place to use entities once I reach a particular number of properties, but the additional protection is marginal at this point. That being said, the only way to get a competent answer on this is through a consultation with an attorney that looks at YOUR particular situation, not a generic, theoretic one. 

[Jaycee Greene]

Hey @Danny Lyu. Did the bank give you any other terms (usually spelled out in a term sheet or LOI) relevant to its loan?

[Griffin Malcolm]

Quote from @Danny Lyu:

Hi All,

First-time poster here. I’m currently in the pre-approval process to purchase a 2-4 unit multi-family property. I’ve approached a local bank in Upstate New York offering a 30-year loan with a 10% down payment. However, the loan would need to be under my name, as they won’t allow LLCs.

I’ve received advice from others who feel comfortable with this arrangement as long as they have high insurance coverage limits, which the lender also recommended. Assuming the insurance premiums don’t significantly impact my cash flow (which is one of my primary goals), how do you assess the risk of taking out a loan under my personal name versus opting for a commercial loan that requires a larger down payment and comes with a higher interest rate?

My goal is to spread my funds across multiple investments to grow my portfolio while keeping my down payments as low as possible. At the same time, I prefer to minimize liability, though I’m not a seasoned investor.

Is this one of those calculated risks that investors eventually become comfortable with, or should I prioritize limiting liability from the outset?

Thanks in advance for your advice!

Hey Danny, I'm based in Schenectady. What bank are you looking into? I haven't seen any yet that do 10% down on non-owner occupant purchases, but that is awesome if that exists. 

On refinances, I use Community Bank because they do 90% LTV, but if we can get 10% down on the buy side too that would be great

[Colin LaReaux]

Quote from @Robin Simon:

Quote from @Danny Lyu:

Hi All,

First-time poster here. I’m currently in the pre-approval process to purchase a 2-4 unit multi-family property. I’ve approached a local bank in Upstate New York offering a 30-year loan with a 10% down payment. However, the loan would need to be under my name, as they won’t allow LLCs.

I’ve received advice from others who feel comfortable with this arrangement as long as they have high insurance coverage limits, which the lender also recommended. Assuming the insurance premiums don’t significantly impact my cash flow (which is one of my primary goals), how do you assess the risk of taking out a loan under my personal name versus opting for a commercial loan that requires a larger down payment and comes with a higher interest rate?

My goal is to spread my funds across multiple investments to grow my portfolio while keeping my down payments as low as possible. At the same time, I prefer to minimize liability, though I’m not a seasoned investor.

Is this one of those calculated risks that investors eventually become comfortable with, or should I prioritize limiting liability from the outset?

Thanks in advance for your advice!

At a high level, this is generally the path people take - we see a lot of people have success in this route - start building the portfolio with banks, low down payments, and then **generally** when you hit around 5 or so properties - it starts to make sense to switch over to LLCs, its too hard to qualify/deal with paperwork of banks and switch towards private lenders like DSCR Loans - (LLC friendly, easier) to scale past 5 or so. But when you can qualify and deal with the process before then - usually worth it to do bank options like this until you hit the scaling point (could be 3 rentals could be 5, could be 10 etc - no real "hard and fast rule")

[Danny Lyu]

Quote from @Robin Simon:

Quote from @Danny Lyu:

Hi All,

First-time poster here. I’m currently in the pre-approval process to purchase a 2-4 unit multi-family property. I’ve approached a local bank in Upstate New York offering a 30-year loan with a 10% down payment. However, the loan would need to be under my name, as they won’t allow LLCs.

I’ve received advice from others who feel comfortable with this arrangement as long as they have high insurance coverage limits, which the lender also recommended. Assuming the insurance premiums don’t significantly impact my cash flow (which is one of my primary goals), how do you assess the risk of taking out a loan under my personal name versus opting for a commercial loan that requires a larger down payment and comes with a higher interest rate?

My goal is to spread my funds across multiple investments to grow my portfolio while keeping my down payments as low as possible. At the same time, I prefer to minimize liability, though I’m not a seasoned investor.

Is this one of those calculated risks that investors eventually become comfortable with, or should I prioritize limiting liability from the outset?

Thanks in advance for your advice!

At a high level, this is generally the path people take - we see a lot of people have success in this route - start building the portfolio with banks, low down payments, and then **generally** when you hit around 5 or so properties - it starts to make sense to switch over to LLCs, its too hard to qualify/deal with paperwork of banks and switch towards private lenders like DSCR Loans - (LLC friendly, easier) to scale past 5 or so. But when you can qualify and deal with the process before then - usually worth it to do bank options like this until you hit the scaling point (could be 3 rentals could be 5, could be 10 etc - no real "hard and fast rule")

 Thanks for the response, Robin! Is the 5 property ceiling (estimate, of course) because of debt to income ratio?

[Danny Lyu]

Quote from @Patrick Roberts:

An attorney would be able to advise on risk mitigation via insurance vs an entity + commercial loan. I have consulted with a few attorneys over the past couple years regarding this and have determined that for my own personal situation, umbrella insurance provides sufficient risk mitigation for my situation at this time. I have a plan in place to use entities once I reach a particular number of properties, but the additional protection is marginal at this point. That being said, the only way to get a competent answer on this is through a consultation with an attorney that looks at YOUR particular situation, not a generic, theoretic one. 

 Thank you, Patrick. 

[Danny Lyu]

Quote from @Jaycee Greene:

Hey @Danny Lyu. Did the bank give you any other terms (usually spelled out in a term sheet or LOI) relevant to its loan?

 Waiting on terms. Will update this post once the details are clear. At the moment, I've only submitted the paperwork for pre-approval. I've got great credit and a healthy amount of capital compared the loan amount. I'll let you know how it plays out. Thank you. 

[Jaycee Greene]

Quote from @Danny Lyu:

Quote from @Jaycee Greene:

Hey @Danny Lyu. Did the bank give you any other terms (usually spelled out in a term sheet or LOI) relevant to its loan?

 Waiting on terms. Will update this post once the details are clear. At the moment, I've only submitted the paperwork for pre-approval. I've got great credit and a healthy amount of capital compared the loan amount. I'll let you know how it plays out. Thank you. 

 A "pre-approval" sounds like a "consumer" mortgage rather than a commercial loan for investment real estate, is that correct?

[Danny Lyu]

Quote from @Erik Estrada:

Quote from @Danny Lyu:

Hi All,

First-time poster here. I’m currently in the pre-approval process to purchase a 2-4 unit multi-family property. I’ve approached a local bank in Upstate New York offering a 30-year loan with a 10% down payment. However, the loan would need to be under my name, as they won’t allow LLCs.

I’ve received advice from others who feel comfortable with this arrangement as long as they have high insurance coverage limits, which the lender also recommended. Assuming the insurance premiums don’t significantly impact my cash flow (which is one of my primary goals), how do you assess the risk of taking out a loan under my personal name versus opting for a commercial loan that requires a larger down payment and comes with a higher interest rate?

My goal is to spread my funds across multiple investments to grow my portfolio while keeping my down payments as low as possible. At the same time, I prefer to minimize liability, though I’m not a seasoned investor.

Is this one of those calculated risks that investors eventually become comfortable with, or should I prioritize limiting liability from the outset?

Thanks in advance for your advice!

 You found a bank that will allow you to do 10% down on a non-owner occupied property?

 Thanks for the question, Erik. Yes. Just got off the phone with the lender and confirmed. Still waiting on the terms. 

[Danny Lyu]

Quote from @Nick Belsky:

@Danny Lyu

What bank is offering 10% down on an investment 2-4 unit property?  That is not likely unless there is more to this than what you are telling us.

Cheers!

Hey Nick - just confirmed over the phone with the lender. Still waiting on terms. 

[Danny Lyu]

Quote from @Griffin Malcolm:

Quote from @Danny Lyu:

Hi All,

First-time poster here. I’m currently in the pre-approval process to purchase a 2-4 unit multi-family property. I’ve approached a local bank in Upstate New York offering a 30-year loan with a 10% down payment. However, the loan would need to be under my name, as they won’t allow LLCs.

I’ve received advice from others who feel comfortable with this arrangement as long as they have high insurance coverage limits, which the lender also recommended. Assuming the insurance premiums don’t significantly impact my cash flow (which is one of my primary goals), how do you assess the risk of taking out a loan under my personal name versus opting for a commercial loan that requires a larger down payment and comes with a higher interest rate?

My goal is to spread my funds across multiple investments to grow my portfolio while keeping my down payments as low as possible. At the same time, I prefer to minimize liability, though I’m not a seasoned investor.

Is this one of those calculated risks that investors eventually become comfortable with, or should I prioritize limiting liability from the outset?

Thanks in advance for your advice!

Hey Danny, I'm based in Schenectady. What bank are you looking into? I haven't seen any yet that do 10% down on non-owner occupant purchases, but that is awesome if that exists. 

On refinances, I use Community Bank because they do 90% LTV, but if we can get 10% down on the buy side too that would be great

Hey Griffin, let's connect and I'll share the information with you. I just got off the phone with the lender. She's near your area. 

[Erik Estrada]

Quote from @Danny Lyu:

Quote from @Erik Estrada:

Quote from @Danny Lyu:

Hi All,

First-time poster here. I’m currently in the pre-approval process to purchase a 2-4 unit multi-family property. I’ve approached a local bank in Upstate New York offering a 30-year loan with a 10% down payment. However, the loan would need to be under my name, as they won’t allow LLCs.

I’ve received advice from others who feel comfortable with this arrangement as long as they have high insurance coverage limits, which the lender also recommended. Assuming the insurance premiums don’t significantly impact my cash flow (which is one of my primary goals), how do you assess the risk of taking out a loan under my personal name versus opting for a commercial loan that requires a larger down payment and comes with a higher interest rate?

My goal is to spread my funds across multiple investments to grow my portfolio while keeping my down payments as low as possible. At the same time, I prefer to minimize liability, though I’m not a seasoned investor.

Is this one of those calculated risks that investors eventually become comfortable with, or should I prioritize limiting liability from the outset?

Thanks in advance for your advice!

 You found a bank that will allow you to do 10% down on a non-owner occupied property?

 Thanks for the question, Erik. Yes. Just got off the phone with the lender and confirmed. Still waiting on the terms. 

 Wow that’s impressive. I hope it’s legit, because that’s definitely not the norm on long term financing 

[Danny Lyu]

Quote from @Jaycee Greene:

Quote from @Danny Lyu:

Quote from @Jaycee Greene:

Hey @Danny Lyu. Did the bank give you any other terms (usually spelled out in a term sheet or LOI) relevant to its loan?

 Waiting on terms. Will update this post once the details are clear. At the moment, I've only submitted the paperwork for pre-approval. I've got great credit and a healthy amount of capital compared the loan amount. I'll let you know how it plays out. Thank you. 

 A "pre-approval" sounds like a "consumer" mortgage rather than a commercial loan for investment real estate, is that correct?

I just confirmed with the lender that it's for investment real estate but it has to be under my name. No LLC. 10% down. NOT owner occupied.

[Danny Lyu]

Quote from @Erik Estrada:

Quote from @Danny Lyu:

Quote from @Erik Estrada:

Quote from @Danny Lyu:

Hi All,

First-time poster here. I’m currently in the pre-approval process to purchase a 2-4 unit multi-family property. I’ve approached a local bank in Upstate New York offering a 30-year loan with a 10% down payment. However, the loan would need to be under my name, as they won’t allow LLCs.

I’ve received advice from others who feel comfortable with this arrangement as long as they have high insurance coverage limits, which the lender also recommended. Assuming the insurance premiums don’t significantly impact my cash flow (which is one of my primary goals), how do you assess the risk of taking out a loan under my personal name versus opting for a commercial loan that requires a larger down payment and comes with a higher interest rate?

My goal is to spread my funds across multiple investments to grow my portfolio while keeping my down payments as low as possible. At the same time, I prefer to minimize liability, though I’m not a seasoned investor.

Is this one of those calculated risks that investors eventually become comfortable with, or should I prioritize limiting liability from the outset?

Thanks in advance for your advice!

 You found a bank that will allow you to do 10% down on a non-owner occupied property?

 Thanks for the question, Erik. Yes. Just got off the phone with the lender and confirmed. Still waiting on the terms. 

 Wow that’s impressive. I hope it’s legit, because that’s definitely not the norm on long term financing 

 Me too! I was referred to the lender by numerous agents and and investors in the area. Fingers crossed but she confirmed over the phone. 

[Nick Belsky]

Quote from @Danny Lyu:

Quote from @Nick Belsky:

@Danny Lyu

What bank is offering 10% down on an investment 2-4 unit property?  That is not likely unless there is more to this than what you are telling us.

Cheers!

Hey Nick - just confirmed over the phone with the lender. Still waiting on terms. 

 Who is the lender?

[Danny Lyu]

Quote from @Nick Belsky:

Quote from @Danny Lyu:

Quote from @Nick Belsky:

@Danny Lyu

What bank is offering 10% down on an investment 2-4 unit property?  That is not likely unless there is more to this than what you are telling us.

Cheers!

Hey Nick - just confirmed over the phone with the lender. Still waiting on terms. 

 Who is the lender?

 Local lender named Community Bank

[Joy TaylorSimmons]

Hi Danny,

I agree with the general consensus regarding the 10% down. I own a 5 family and 4 family in upstate, NY The 5 family is considered commercial and the 4 family is not commercial and I needed to have 20% down on both. With the 4 family the bank did not understand my LLC and I had to put the property in my name. The insurance and depending where you are at in upstate, the taxes are where it hits your pockets. The other thing to consider is your renting strategy, Long, Medium, or Short term/Airbnb. This is key to your whole operation. I know people who used community bank and love them. I did not use them.

[Jaycee Greene]

IMHO, if you're working with a bank that "doesn't understand" the LLC, then the bank probably doesn't understand non-owner-occupied investment real estate.

[Nick Belsky]

Quote from @Danny Lyu:

Quote from @Nick Belsky:

Quote from @Danny Lyu:

Quote from @Nick Belsky:

@Danny Lyu

What bank is offering 10% down on an investment 2-4 unit property?  That is not likely unless there is more to this than what you are telling us.

Cheers!

Hey Nick - just confirmed over the phone with the lender. Still waiting on terms. 

 Who is the lender?

 Local lender named Community Bank

https://cbna.com/ ?

[Colin LaReaux]

Quote from @Nick Belsky:

Quote from @Danny Lyu:

Quote from @Nick Belsky:

Quote from @Danny Lyu:

Quote from @Nick Belsky:

@Danny Lyu

What bank is offering 10% down on an investment 2-4 unit property?  That is not likely unless there is more to this than what you are telling us.

Cheers!

Hey Nick - just confirmed over the phone with the lender. Still waiting on terms. 

 Who is the lender?

 Local lender named Community Bank

https://cbna.com