Traditional Vs Commercial Financing?

Question

Traditional Vs Commercial Financing?In the last 2 years, my amazing wife and I have purchased 15 SFH and 3 duplexes (21 doors all worth 50-80k each) that we have rehabbed and rented with the plan to hold for ever and use to be financially free. Currently we profit an avg of $400 per month per property. We plan to continue and pick up at least 9 more by the end of the year using a commercial line of credit we have against a few we own outright and BURRR them. We currently have them financed/owned as followed:- 8 are on traditional 30 mortgages at 5.5-6% (best we could get last year on investments)- We currently have 5 properties on a 20 year amortized commercial loan for 5 years.- We currently own 5 outright that we have a commercial line of credit against.-OPPORTUNITY-Our commercial loan guy said he could roll all of our loans (they are all at the same local bank) traditional and commercial into one commercial loan at 4% amortized over 20 years for 5 years. This will lower out total monthly payment by $150 per month and theoretically cut 10 years off the repayment. **Here is my QUESTION:Would you take the traditional loans off a fixed (not currently amazing) rate and roll them into a better commercial loan that needs to be renewed in 5 years?Pros:- Higher monthly cash flow- Theoretically faster payoff (im sure we will pull all the equity out asap anyway)- Free us up to make traditional loan purchases again(this will give us different opportunities to buy houses in a changing market down the road)Cons:- Interest rates could go up in 5 years (though, most of our properties moving forward will be on this type of loan anyway).DO WE roll them all into one commercial loan or keep them as as they are????

Michael Henry · Answer

@Mike Zahniser A lot of times newer investors refinance with a commercial loan because they have reached their limit with traditional loans. If you are planning on purchasing more properties this will free up your ability to get more loans traditionally (which you stated). The only other thing you need to question is the cost of the refinance.

Tarik Turner · Answer

Keeping the conventional loans would be your best bet however their are lenders that offer 30 year fixed terms for investment properties. I can almost guarantee that your rate will be over what you have been quoted on your 20 year loan however so it is a trade off

Daniel Dietz · Answer

We are able to get a 25 year amortization and 10 year lock on our portfolio loans, with a max 1% rise after that up to a total of 6% by year 16. I would push for better terms on the refi

Bill C. · Answer

@Mike ZahniserGood question, and a good problem to have :)I’d say if you’re worried about interest rate risk, it’s relatively low. The Fed has already signaled that rates will be essentially at zero for 2 years and I think the lower-for-longer regime of rates will persist for a long time unless inflation rears its ugly head (even though they said they’d be ok with it being above the 2% goal for a while too) in which case rates may have to go up. Most loans loosely track the 10-year T-bill and the rate on that has been consistently dropping despite a relatively robust equity market, there’s even talk of rates going negative without the Fed actually pricing them below zero itself.So, in terms of interest rates at least.... probably safe after 5 years. Once you go out for 10-15 years, it’s harder to predict but honestly you’re cash flowing so nicely, if you take a break in a few years from growing and debt-snowball, you’ll be fine.Where are you investing BTW? I’m looking into different markets and those are nice numbers. Lemme know if you would like to chat some time.

Daniel Dietz · Answer

We use Paper City Saving out of the Wausau area of WI, Dave Cooper in the loan officer. Unfortunately (for you) I am pretty sure that they only lend in WI. Might be worth a call and possibly he would have a name in your area (looks like you are Ill.?)

Chris Youssi · Answer

Why not have the best of both worlds and do both?Refi your long term debt in the secondary market and then refi your commercial debt per your initial post. Also an FYI an earlier post stated you can wrap everything up in a commercial loan and then start new in the secondary market. I would double - triple check that with your secondary market lender ( 30 year fixed rate ) as I believe this is incorrect information . Reason being is you will have reached your limit in the secondary market for new loans based upon number of units you own. My thoughts - happy hunting!

Mike Zahniser · Answer

@bill @Bill C..... Yeah man! anytime. We live and invest in Rockford IL currently.

Albert Bui · Answer

I use local credit unions and community banks for portfolio commercial notes and lines. I've had good success with these. They lend based on 1.25X DSCR just like any other multifamily or commercial loan, 70-80% LTV,

Mike Zahniser · Answer

@Daniel Dietz I need your banks info! Right now with covid, the 2 that I work with, they dont want move much as they are unsure of the future of the job market and ability to pay. The other one is talking 15 years amort at 65% ltv

Mike Zahniser · Answer

@David M. We do not plan to pay them off anytime soon. We do have 5 or 6 paid for and im sure we will come into more. But right now its all about speed of growth and speed of accusation so that we can generate as much income as quickly as possible. We plan to buy 9 more by the end of the year and by the end of next year be at 40 total. We have so much cash flow that even if things change a lil we will be ok. We plan to use as much leverage as possible. We are only financing 35k per property so its really not a big deal