All Forum Posts by: Jeff Sims

Just a fun post here. I have been a SFR investor for 15 years and now have $2M in rental RE while working a full time career. The cash flow was tight for years it seemed but the snowball of debt paydown is rolling big time now and I'll be able to "retire" in 2 years with enough cash flow to replace my salary.

That said, I can't imagine having a car payment and only buy used vehicles. I drove a 1999 Jeep Grand Cherokee (to haul all my rental supplies) for 7 years and the engine blew a year ago with 275k miles. I made a significant upgrade and replaced it with a 2000 Jeep Grand Cherokee with 110k miles and paid $3,600 cash.

I don't need the status symbol of a new vehicle nor the monthly payment and living well below my means is my motto. As Dave Ramsey says, "live like no one else today, so you can live like no one else tomorrow".

As a SFR investor and a commercial lender myself (since 1999), I think I can speak on the topic. A commercial loan is not a residential mortgage loan and can be alot more forgiving in the approval and documentation process. Also, there's usually just an origination fee (1.0% of the loan amount) and no underwriting, doc prep, credit report, rate lock, or whatever other fees they tack on residential mortgage loans. One last thought, there is no maximum number of commercial loans you can have (either in your name or an LLC) and a single commercial loan can include multiple properties.

That said, commercial loans do have limited terms and conditions vs a residential mortgage. The max term is generally 5 years (fixed or variable rate) with a 15 or 20 year amortization depending on the dollar amount and condition of the property. 5 year fixed rates (in NC) are in the 5-6% range right now and a variable rate is probably Prime+1-2% (4.25-5.25%). With the variable rate, a floor/mimimum rate is usually established that kicks in with our current rate environment. The floor rate is generally 0.5-1.0% over the current variable rate realizing that variable rates (Prime) will increase in the coming years. That said, I try to point out that variable rates will most likely go up over the next 5 years and the fixed rate may be the safer bet and allow you to sleep a little better at night.

Regarding the balloon 5 years out, as long as the loan has been paid as agreed and the bank is still in business, the bank will generally want to keep the loan on the books and offer competitive renewal terms. The process at maturity is the same at origination. Provide updated financials, get an updated appraisal, and sign a short renewal/modification agreement (there's usually a nominal renewal fee as well). Signed, sealed, and delivered with no attorney closing stuff and the loan is set for another 5 years. When I'm at the closing table (at loan origination) I generally say that in 5 years we'll get updated financials/appraisals, and update the rate and payment accordingly.

Hope this helps and I welcome any and all feedback.

 I could not have said it better myself.  My nirvana (when time stands still) is when I'm working on a house and thinking through the jigsaw puzzle of how to put it back together.  When I lay awake at night trying to release my stress from a banker/computer screen day job, I think about how I will tackle a renovation or repair and it puts me at ease.  That's how I found my passion and one of these days I'll be able to do it full time.