I’m close to making an offer on my first rental (a 7-unit in Massachusetts.)
My wife and I would own it through an LLC. We have excellent credit (over 780 for us both) and 20% to put down.
I would imagine we are a lenders dream… so what types of loans and rates are available?
I contacted a few local banks, but they started talking about 10 to 20 year terms and balloons.
Is a simple 30-year mortgage not an option? (I based my evaluation numbers on a 30-year fixed)
Thanks for any guidance…
Will you be going full doc or stated? That makes a big difference. You should have the option of a 6 month fixed , 3 year fixed, 5 year fixed, 7 year fixed, or a full 30 year fixed. You will also have the option choosing 15, 20, or 30 year amortizations.
Whatever is best.
We have plenty of income that is easily verified.
Another reason I feel like we should be a “dream” client.
;D
I’m off to bed… will check in morning for more replies.
Thanks,
For the best possible rate obviously full doc would be the way to go. As for loan term and amortization you have to review your goals for the property before you make that decision. The shorter the fixed term and amortization the better your rate will be. Also, you can get 90% LTV for the same rate that you can get 80% LTV so put down as little as possible.
The higher the loan amount the lower the rates become. What is the purchase price on this property? And what are the financial particulars on the building, cap rate, occupancy rate etc.?
A couple of other properties have also caught our eye, so rather than list all the particulars for each property… can someone talk in general terms as to recommended practice as far as evaluation/financing?
In other words, assume the following “average” building:
Asking Price: $325,000
Rent Roll: $46,800 yr
Less 7% Vac: $43,500 yr
Expenses: $7000 yr
Taxes/Insurance: $6500 yr
Cap Rate: 8.5%
Just to clarify above info… I understand the basics of evaluation based on the NOI and Cap Rate formula… looking for a bit more than that.
Just make sure that you have all of your paperwork in order.
Any reputable Lender that specializes in Rehab will have very competitive rates and fees and won’t have any prepay penalties.
When it comes to commercial financing loan size is a considerable factor. For loan amounts under 500K your looking at rates on a 10Yr ARM 30YR amortization @ about 8.500%. A loan amount of 500K or more with the same terms would have a rate of about 6.575%. As I’m sure you can tell that makes a considerable difference in cash flow.
Most commercial loans have 10 or 15 Year “bullets” or “balloons” or are ARM’s that are fixed for a max of 10 years. While 30 year fixed rates are available for small loan amounts you are going to pay for it. As of today rates on 30 year fixed rates for small balance multi-families are about 10%.
Your best option for financing is going to be a 10 year ARM with 30 year amortization on a loan amount at or above 500K…Keep in mind that 10 years is a long time. Take a look at local property records you will find very few property owners that keep a mortgage more than 7 years let alone 10…it is very rare for anyone to keep financing in place for a full 30.