All Forum Posts by: Darryl Dahlen

What is the caliber of the tenant pool? What's the condition of the property? Both can make or break a deal so it's important to look at the big picture, not just the numbers. That being said, from a number's standpoint, I'd say this may be worth exploring further, but they have to be ready for the increase in headaches due to the nature of owning multifamily. They also need look at the actual numbers as the expenses could easily be higher. What kind of management is in place? Professional, realtor, tenant, what?

 
The reality is that very, very few lenders are actually lending 80%. Most are in the 70-75% range, even Fannie and Freddie. HUD's multifamily loans can provide for extreme leverage, but you wouldn't use a HUD loan on a loan this small.

As to the approach a lender will take on this, as mentioned, the lender would use the purchase price as the basis for the loan, not the appraised value. 

This would leave you injecting anywhere from 20-30% as a down payment, plus closing costs, and then whatever reserves the lender requires in the form of liquidity. Generally, that's 6-12 months of PI payments.

After 12 months you can usually use the appraised value for the basis of a new loan, but it's important to note that banks don't like cash-out requests in general, and will still look at the cost basis for any new loan. Meaning, good luck finding a bank who will let you strip out all of your cash simply because the appraisal came in strong.

You don't pre-qualify for a loan on the commercial side like you can on the residential side. Reason being is that a commercial loan is based on the property's ability to repay the debt, not on your personal income. As such, there is no way for a commercial lender to issue a pre-approval based on hypothetical figures. They need the financials of a subject property to conduct their analysis.

As someone who focuses almost exclusively on funding multifamily loans I can offer you some advise based on many years of working with borrowers of all types.

As previously mentioned, get your PFS in order and keep it up to date. Lenders generally like to see 6-12 months worth of Principal and Interest (PI) post-closing liquidity..at a minimum. The more liquidity (cash, stocks, bonds), not 401K as that is discounted, you have the better as that mitigates risk, and since you'll almost certainly be obtaining a recourse loan your guarantee needs to mean something and that is based on the amount of liquid funds you bring to the table.

Find a property that is "safe". I see newcomers to the multifamily space all the time who want to get into rehab/value add opportunities with no real multifamily ownership experience. No commercial lender wants to be your guinea pig on a property that needs work and/or a new management style. The less experience you have the safer the asset needs to be. That, and you should align yourself with a reputable property management company who can help you make sound management decisions.

You should focus on buying a property that can demonstrate solid historical financials, isn't in need of significant CAPEX, and is in a decent market. There may still be some financial upside to be had from making improvements and upgrades, cutting costs, and increasing rents, but I rarely see anyone obtain financing (outside of hard money) if they are looking to hit a financial home run by buying under performing properties AND obtain conventional financing on them.

Lastly, while it is possible to finance large(r) loans as a "newbie", I suggest doing your homework on lenders the larger the loan becomes. Banks have their place, but they're not without their shortcomings. Getting the best terms on a small(er) loan isn't nearly as critical once you start getting upwards of 1MM. 

Shopping for the highest LTV is important, but so is getting the best amortization you can. A loan with a 20 year amortization can drastically impact your numbers compared to a loan with a 30 year amortization.

Eric is correct that you can expect to run 55-60% in expenses. I am very active in the TX market and just closed an $8.5MM project in Houston. I'd be happy to share with you some figures to help guide you on what the expenses should be. Send me an email and I'll reply with the data.

 Glad I could help, James.

James- I can refer you to a good bank who has a small balance commercial program that has a 10 year option and a 25 year amortization. I cannot tell you what the rate would be as you would have to price your loan out, but I do know that if you qualify you can obtain two of the three items you want. 

I'm very busy right now so I'm happy to simply refer the bank you. Send me an email and I'll give you my bankers contact info.

25% down is typical for a multifamily loan. You will also be on the hook for closing costs, title, and the 3rd party reports. You would also want to inquire about what their post closing liquidity requirements are as most lenders require that you have 6-12 months of PITI payments readily available.

I didn't experience any issues with the appraisals, but the UW process was a bit tedious, but it was being outsourced that time.
I've gotten quotes on loans since then and I speak to my rep there fairly often so I have a good pulse on what's going on there and I'd say they're much improved, but I can't speak as to what how the loan process is currently, but for those who have limited access to blanket loans via a conventional bank I suspect that the ability to secure this kind of financing makes most lender related hiccups a mute point.

I've brokered a loan to them. I submitted a loan when the fees were much higher, but the borrower had purchased a portfolio of properties using cash and wanted some funds to continue to buy properties.
Since then, B2R's fees have been reduced, a lot and UW process is more streamlined as they now UW their loans in house.
This program isn't for everyone, but it is useful to foreigners who now have access to higher leverage loans and for those who have bought properties using cash or high interest rate loans and want to get cash back. B2R can used the appraised value after 90 days seasoning which is also useful for many borrowers.

Thanks for mentioning my name, Bryan. I'm still around, but I am very focused on our multifamily loan origination side which keeps me busy. As Jared mentioned, he works with me so I let him handle the active posting side here on BP these days.