Rental Property Investor · Walpole, MA · Member since 2018 · 26 posts · 7 votes
Hey BPers,
I’m looking for a 5+ unit property to buy and rehab in cash, then refinance with a commercial lender at 75-80% LTV. How do lenders determine property valuation in these cases?
Also, what specific challenges should I be aware of before pursuing my first BRRRR deal? Appreciate any insights!
Most lenders do 75% LTV max on a 5-10 unit properties from what I found. They'll tell you 80%, but then later in the process, do a 5% haircut. 5-10 properties are more risky than 1-4 or 10+ because there are fewer buyers and these properties use residential DSCR ratio instead of commercial.
Lender · Los Angeles, CA · Member since 2022 · 967 posts · 445 votes
1y
Hi Pankil,
There's a lot less options for 5+ units in the market compared to 1-4 units so it'd be crucial to line up financing beforehand. For example, rates tend to be slightly higher than 1-4 units and the best programs will underwrite more conservatively than the regular DSCR (Rent/PITI) and rather take an expense ratio approach from NOI. Also, seasoning requirement tends to be higher due to less options (ex. 6 months seasoning instead of 0-3 month seasoning on 1-4 units).
For the best programs, you'd also want it fully rented at or above market rent before refinancing.