Commercial Loans - are these easier than conventional???

Question

Hi everyone! We are currently running into a financing issue. I work on contract and my boyfriend is 1099 so we're having a hard time getting our hands on a mortgage. We've been debating back and forth about how we were going to do this: private money, hard money, OR we would just buy something on a larger scale, 5+ units and get the commercial loan. In our situation would it be easier to get the commercial when it looks at the property vs. the conventional that looks at our income?

Todd Rasmussen · Answer

@Caleb Reits

It's all based on the specifics of your situation so exploring all the options is best. We've had pretty good success with commercial lending. We BRRRR SFH's. When we approached the limit on personal mortgages, I made an excel sheet of all the credit unions and small to mid size banks in our area including senior vp's of commercial lending or business relationship managers (or whatever they call them). I prepared a personal financial statement, then we sent them and a few hard money/private lenders an email that read like this:

Hello Name of Person,

I am reaching out to introduce my wife Elyse and I to Name of Bank. We hope to migrate to the Clarksville from Los Angeles, CA once we build a successful base income off of real estate investing. Our primary lender thus far has been a regional credit union in Indiana where we purchased our first rental property. We have been very happy with them, however there are things that I’m looking to add to my lender relationship that are missing. Additionally, the opportunity to help businesses local to where I’d like to end up seems like an added mutual benefit.

What we don’t want to give up:

Our current loan originator is extremely responsive, knowledgeable and thorough

Loans at 80% LTV on investment properties (both purchase and cash out refinances)

Competitive rates

We are hoping a local bank might have:

Lesser fees

Commercial lending abilities/willingness (We will need some kind of transition strategy to maintain our growth once we hit our Fanny Mae limit in three more loans)

Servicing of their own mortgages and/or direct lending

Briefly, our lending need timeline is:

Immediate:

Cash out refinance SFH in Indianapolis, IN (Refinance 15 year loan to 30 year loan and draw equity)

No cash out refinance SFH in Oak Grove, KY (Hoping to lower interest rate)

On 4/12/19:

Cash out refinance Duplex in Lehigh Acres, FL (purchased and improved with cash on October 12 2018, and financed using delayed financing exception so we are circling back to finance at appraised value versus purchase price)

On 9/8/19:

Cash out Finance SFH in Clarksville purchased and renovated outright on 3/8/19

On or about 10/17/19

Cash out Finance SFH in Clarksville we expect to be acquiring shortly.

I’d be interested in speaking in more detail at your convenience, or would appreciate your referral to someone at Bank Name you feel might be more appropriate to have a more detailed conversation with.

Thank you for your time.

Sincerely,

Todd Rasmussen

Phone Number

Based on responses we had brief email conversations and sent our personal financial statement to 10 or 20 out of 30, set up in person meetings with 2, and picked who we thought would be the best fit for us. In this meeting, ask what they are looking for in an investment property, including ideal and minimum standards. That way, when you actually apply, you can give them exactly what you know they will approve. Even for the lenders we haven't done business with, but seemed like a possible fit I send them a regularish email with an updated personal financial statement and a narrative of what we've been up to. That narrative also highlights the changes from the previous PFS to the current one. Showing up and saying "This is what I have, can I have a loan?"  carries very little weight. You want to show up and say, "Hi again, we have a property that meets your criteria, what's your timeline for closing right now?"

In case this reply wasn't long enough,

I wouldn't change your investing plan to fit what type of lender you go to. I'd find a lender that will fit your financing plan. There is a financing solution out there for everyone, you just have to keep looking until you find it.

Andrew Postell · Answer

@Caleb Reits commercial/portfolio loans, to me, are significantly easier to get AND you can get them on a single family home.  It doesn't have to be a 5+ unit property.  The income of the property is important and not your personal income on those loan types.  Hope that makes sense.

Todd Rasmussen · Answer

@Caleb Reits

Having an interested loan originator helps, it's a lot of squeeze and not a ton of juice for the lenders. You will have better luck using a commercial loan for multiple properties. I shoot for four SFH's in a commercial loan but have gotten them to write me a single LOC against a single SFH before.

The 5+ unit rule is more that you can't get a fannie freddie backed product for over 4 units so you have to go commercial.

Stephanie P. · Answer

Just go commercial all the way; single family. 2-4 units or 5+. Way easier.  Find yourself a good commercial mortgage broker that does DSCR loans.

Stephanie

Grant R. · Answer

@Frankie B.

Educate yourself really well on all the benefits for a seller if they finance any part of the deal (Google/BP/Library/Courses/YouTube).  You may have to educate a seller, and show them its a win-win, so be ready.

Then just verbally ask a seller if they're open to it, and walk them through what you learned.  That's an off-market example.  Many are open once they understand it.

For on-market, you probably can't talk directly to the sellers, only their agent.  In this case, try submitting two offers (options).  For example, a conventional bank financed option, and an option with partial bank and partial seller financing.  Offer a higher price on whichever one you would prefer them to choose.

There are other methods too, these are just examples.  Hope that helps :)

Frankie B. · Answer

@Grant R. any advice on how to approach a seller with seller financing? We have a SFH investment property and we have enough to put 25% down on another SFH, but we'd prefer a small multi-unit and that's where it can get really pricey.

Grant R. · Answer

@Frankie B.

Yes, most often it's 25%.  Keep in mind that some of that 25% down at closing can come from sources other than you.  The key is more that the bank isn't financing any more than 75%.

For example, you could bring 15% in personal cash, and have the seller finance 10%, for a total of 25% that the bank is not providing.  Every bank is different, but with commercial, all these structures are possible somewhere.

Frankie B. · Answer

Do you still need have the 15-25% down for commercial loans?

Caleb Reits · Answer

Wow! Thank you

@Andrew Postell

@Stephanie P.

& @Todd Rasmussen

This was all VERY helpful thank you so much. I didn't realize you could get a commercial loan on a SFH, i thought it had to be 5+ units or they wouldn't even look at it? What is needed to qualify for a commercial loan on 1-4 units?

We've crunched some numbers on larger properties and are so much more excited when talking about going through the deal because it will get us to our goals faster. @Todd Rasmussen I totally agree with you on the find the lender that fits YOUR criteria. I know we are in Michigan, but is it possible to have a lender out of state for your properties? @Stephanie P. I see you're a lender in Washington DC, would it be possible for you to lend to out of state people?

Commercial Loans - are these easier than conventional???

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