I’m looking to cash out a mortgage free rental property and have talked to a number of commercial lenders, but they don’t want to give me favorable rates. Everything adjusts after 3/5 years. One lender is offering better terms, but I must run it as a “personal loan”. Can anyone advise on this? I know it will show on my personal credit, but are there other factors at play here?.. How’s it different from cosigning a commercial loan for my LLC? thanks.
Cosigning for a commercial loan for the LLC should show up on your credit report as you being a Guarantor (that’s the way ours show). An actual personal loan would be to you directly and would show up as a regular trade line on your report as an installment loan that you are primarily responsible for. If this is a “signature loan”, you can probably expect the interest rate to be fairly high. I’ve seen plenty of those for 10-12%.
This was actually at BB&T, you’re probably familiar, and it’s a 30 year secured loan at 5.5% fixed with 80% LTV. The lender just told me they could do a “personal loan” for two properties grouped together. I know it’s hard to say without knowing more details, but do you think this is worth looking into? Would you recommend a personal loan to me directly showing up as a regular trade line?
Guess it depends on what your goals are. That seems like a pretty good rate and a long term if that’s what you’re looking for. Regular trade lines will count against your DTI ratio and could hurt if you’re trying to get other financing in the future for other things. There are plenty of mortgage experts on here that can provide more help. That’s just how I see it.
I see… that’s kinda what I was afraid of, but don’t commercial loans hurt dti; as well?
My banker told me that it should be looked at a little differently because we’re just gurantors of the loans. He also said we could show our business paperwork or have a potential creditor contact him directly to clear up any questions if necessary.
Good deal… I actually just read that other DTI post and that pretty much answered my question. I have considered doing all commercial loans with adjustable rates, but am afraid of interest rate spikes. Whats your take on that, and what’s your back up plan if rates go up to 15%? I haven’t been able to find a commercial lender with a rate cap, and should rates climb, I’ll never cash flow. My plan would be to dump properties, but if the market doesn’t pick up that probably won’t happen. I like the personal loan idea, but then we get back to all the DTI issues.
If interest rates started to rise rapidly, our plan would be to stop buying more properties for a couple reasons. One would be the cost of the money borrowed. The other would be so we could focus on paying off the existing properties. If it came down to it, I could pay off some of these houses in just 3-5 months. I’m normally not a fan of adjustable rates either, but for NOO properties you take what you can get or you sit on the sidelines.
I want to get all our properties paid off for cash flow purposes anyway. If rates skyrocketed, it would just be extra motivation to get them paid off sooner. We’ve made lots of choices with our personal finances to facilitate buying more houses so we would just use that extra money and the extra rental income to finish off the loans.
I feel a little better today… I just looked at an amortization schedule for a 15 year commercial loan with a 5 year lock at 6.5%, and even if interest rates go to 13% after year five, I should cash flow. The problem is my commercial banker claims the note “balloons” after year five. I just had this happen with my credit line, and they reviewed my financials extending for another 3 years. I’m just afraid in five, or three years for that matter, this might not be the case. Have you/anyone had this happen and would the bank demand the loan due? Would they be willing to foreclose on a good client with no late payments just to cash out?
My commercial loans balloon too. I have to give my small private banker annual tax returns and a business profit and loss statement. The loans are variable interest at 6% which is the present floor.
It will take a couple of years to build up a good local reputation.
If you pay on time they should renew. If they can’t or won’t, you can shop your good-payment-record loan and your annual profit and loss statement to your other local banks. Someone will want a good, new customer.
One of our loans just went over 3 yrs so it was reviewed. Our monthly payment went down nearly $40 so it’s not always bad. I asked the same questions of the banks as your concern about calling the loan due. They’re making a guaranteed rate of return on their money. They’re not going to call your loan if you’ve been good with it. The longer you keep making on time monthly payments, the more they make.
That’s good to know! I appreciate the info… I guess banks are just not very interested in rental property and after several purchases with personal loans, they start to catch on. It’s just a shame to pay so much more for a commercial loan when the notes secured with real estate…especially with low LTV. Any thoughts? Any idea on ways around qualifying for additional personal debt for rentals?