All Forum Posts by: Joseph Lyons

@John Warren when I said I didn't love the terms, I meant that I didn't love swinging from single family 30 or 15 year fixed interest rates to having 25 year am w/ balloon and variable fixed rate periods. As I understand though, balloons are common in CRE?

Is getting a fixed interest rate for the life of a loan an option once you’ve established yourself? Obviously, that’s not what I’m trying to do at this time, but I want to be aware of what’s available. I realize I can buy a fixed rate for the life of the loan (more or less) by selecting the 20 year fixed period, but the interest rate is less attractive. Is that just table stakes in CRE?

I explained plainly to my lender that I was planning to do substantial rehab work and a cash out. He said, “yeah, it may be wiser to do a 3yr if that will be your plan. Then you could do a new 10yr down the road for your refinance”. Everyone on this thread has been extremely helpful. Thank you all for your wisdom. I’ll have to do more research on prepayment penalties, as that topic has not come up between my lender and I.

This is my first commercial loan, so please excuse my ignorance Caroline. There is no prepay, and the lender has not mentioned points associated with these rates. I'm not sure what you mean by rebate pricing - would you be able to share some knowledge on that? 

As far as the refinance, the "unknown rate" is the biggest factor for us in considering a longer fixed term. I've told my lender in plain language what our plan is. Rehab all the units, increase rents substantially, and cash out refi to recover as much of the money we have in the deal as possible, as quickly as possible. 

With that said, I want to complete that in 9 months, so would it not make more sense to go with a the shortest fixed term at the lowest rate? Since we'll have to pay the market rate after the refinance anyhow. Our rationale is why not save the money during that 9 months? No matter what happens with the interest rate, we'll be refinancing, because we have to recover the capital invested to invest in future projects.

After the cashout refi, we want to select the longest fixed term we can tolerate for rate security. Due to our inexperience in this realm, we feel unsure of the plan, so please punch holes in any misinformed logic. Thanks

I’m closing on a sixplex, in Des Moines, IA, here in about a week. I don’t love the loan I’m getting, but it’s getting me started, and that’s what’s important right now. There’s a 

“Range of balloon note products that we offer for multi-family. They range from 3yrs fixed to 20yrs fixed and are all amortized over 25yrs with a minimum of 20% down. Closing costs typically are around $1,600 plus .25% of origination. Below is a range of rates for each fixed period.

3yrs – 2.75-3.00%

5yrs – 3.10-3.35%

7yrs – 3.40-3.65%

10yrs – 3.65-3.90%

15yrs – 3.95-4.20%

20yrs – 4.20-4.45%”

Per my lender. Now once we get in to the property we’re planning to do a substantial renovation in each unit. Once the rehab is complete and the tenants are stabilized we want to do a cash out refi to get our money out and into the next deal. 

So would it be better to take a shorter fixed period at a better rate? Since we’re going to refi at the end of the rehab, we’re not sure if it makes sense to be paying a higher rate during the rehab? Any advice is greatly appreciated.

Also, if anyone has a great commercial lender that would like to help w a refi when the time comes! Thanks!

That is the problem indeed. I’m not against taking risks by any means. It does worry me however to buy the building for 200 and to know that the actual cash value of the building is maxed 275. I’m going to be adding tens of thousands of dollars in updates to the building. Also, I wouldn’t have bought the building for 200 if I thought it wasn’t worth more than 200. So a number like 275 as the ACV for the building doesn’t sit well with me. 

Thanks @matthewcrivelli

I'm closing on a 6-plex in Des Moines, Iowa, this November!!! Built 1890. Older roof. All units on separate meters. Seller has done a good job of keeping up with electrical, plumbing, fire safety, HVAC and general updates. My insurance agent that I've used for primary, auto, and my SFH rental has just quoted me for it. He's an independent broker and the best rate/coverage he found is 3400/yr paid in full, 3800 if paid monthly. I feel he acknowledged that the rate was a bit high. 500k of building coverage. Deductible isn't too low. I'm paying 194k for the unit. Replacement value probably doesn't need to be 500k, but even if we dropped it, the rate is still high. Does anyone have a good insurance provider that they can recommend that offers policies in IA? And are there any endorsements I need to ensure are part of my policy? Thank you!

Thank you @Ken Dunn and @Jessica Tsao! Unfortunately, our final closing date is 11/22, so maybe not the best timing as far as getting units rehabbed. That’s great advice. We’ve planned to use water friendly fixtures throughout! I’ll check out your response- thank you both for the warm welcome.

First time poster, long time lurker!!!

My fiancé and I have just made our foray into small multifamily. We bought a 6 unit multifamily. 4 of the 6 units are occupied. All tenants are paying substantially less than market (average is ~750). One woman has lived there for 30 years. Another as lived there for 9 years. They each pay about $475/mo for 1 BR/1BA units. All units need fairly substantial cosmetic rehab.  

The landlord we'll be taking over for has all the tenants paying utilities differently, which has us a bit confused. Some pay electric only, landlord pays the rest. Some pay nothing. Some pay electric and gas and landlord pays the rest. All of the units have independent metering for gas/electric. Water has one meter. We have some stabilizing to do with all the units. 3/4 of the tenants are month to month. 

Our plan is to rehab the 2 vacant units before removing any paying tenants. Some money seems better than no money. Once these units are complete, we're hoping to offer them to the existing tenants at market rate, instead of just serving them notices of non-renewal and saying sayonara. However, we do want to have existing tenants start paying for their own utilities. Of course, the one that still has 5 months on her lease (which includes all utilities paid by landlord) doesn't apply here. I don't know if I need to write a new month to month lease for all these folks with the new guidelines or if I should just have them sign some sort of utility agreement? 

Even with the significant vacancy and low rents, our DSCR is ok. Cashflow will be tight until rehab is done and units filled, but I'm anxious to share more info about this project as we learn and grow in this space. Any input on any of the things I've discussed is greatly appreciated.