Commercial 5-year ARM's - Please tell me there is a better way!

[Danny Daniels]

My wife and I are 2.5 years into real estate investing in Michigan. 1 Rental, 1 fix and flip on which we just received our first offer!! Yeah!!, and 4 properties we purchased at a tax auction in late 2024. I handle the financing, and she handles the management.

I would really appreciate some direction and advice from this community.

Below are the details of our four tax auction purchased properties. We may have swung a little too big for our first at bat, but we believe in ourselves, have a great mentor, work with a honest builder, and are in a market lacking rental home supply.

However, why can I not find a bank or CU to loan me money on any loan product other than a 5-year ARM balloon with a 15 - 20 year amortization? In order for my numbers to work long term, and to make our dreams come true, I need a 15-year loan. I would accept an adjustable rate, or even a higher fixed rate, but this 5-year ARM stuff means I only pay interest for 5 years, then they want me to do it again and again. I believe that to become financially independent, I need to be done paying for these in 10-15 years.

Full details are below...by here is the elevator pitch...

4 properties with an expected ARV of 360K (Appraisals should be back in 2 weeks).

My all in cost for purchase, auction fees/taxes, and expected rehab is 320K.

I am seeking a loan of 240K, which is about 75% LTV of my total cost basis, and only 67% LT ARV.

Cash investment is 110K, and we should get 80K back from the loan with the intent to do it again next year at the auction.

I feel like this is a win-win for me and the bank, but, as I mentioned, they only want to give me a 5-year ARM. I feel like I am missing a puzzle piece. I am super new to this community and any help is much appreciated.

Rental Property Loan Request Package - March 2025
Street Address	Bed/ Bath/ Sq Ft	Purchase Price	Auction Fee's & Taxes	Estimated Reno Cost	Cost Basis	Loan Request	ARV
Property 1	3/1 1008	24,750.00	2,830.26	77,500.00	105,080.26	78,810.20	Approx. 100K
Property 2	2/1 1065	16,000.00	2,369.40	37,500.00	55,869.40	41,902.05	Approx. 80K
Property 3	3/1 1189	24,750.00	3,070.49	58,560.00	86,380.49	64,785.37	Approx. 100K
Property 4	2/1 793	32,250.00	4,056.79	37,000.00	73,306.79	54,980.09	Approx. 80K
				Loan Request Summary
				Total Cost Basis:	320,636.94
				Loan Request (75% LTV):	240,477.71
				Total ARV:	Approx. 360, 000

Annual Financial Projections
Rental Income	Property Tax	Insurance	Maintenance / Vacancy	Estimated Mortgage (15 Fixed 8%)
17,076.00	-1,577.00	-498.00	-1,704.00	-27,600.00
13,404.00	-1,375.00	-601.00	-1,340.00
17,076.00	-1,150.00	-651.00	-1,704.00
13,404.00	-1,365.00	-531.00	-1,340.00
Financial Summary
Total Annual Income:	60,960.00
Total Annual Expenses:	-41,436.00
Annual Profit:	19,524.00
Cash Investment:	110,076.94
COCROI:	17.74%

[Patrick Roberts]

This is the trap of low ARV properties that I was discussing in a different forum the other day. Financing is difficult to find when the loan amount is under $100k. There are some DSCR lenders who will fund loan amounts of $75k, but you'll likely need ARVs around $100k to make those work. If youre trying to get a portfolio (blanket) loan on these, that will likely be even harder.

What youre currently being offered are true commercial loans - they rarely have tenors longer than 5-7 years. Might be as good as it gets. Maybe some other lenders familiar with the Michigan area have some other ideas. 

Another thing to check into early on is title insurance - many title companies wont issue policies for properties that are obtained via tax foreclosure. Id ask about this up front before you pay for appraisals and everything else to find out a week before closing that they cant lend because of title issues.