Multi-family and Commercial Financing

Financing strategies for a multi-family residential investment property are distinctly different than those you might consider when buying a new home.

You must first consider your hold period.

How long do you intend to hold the property? Given the ups and downs of market trends, it is a good idea to review your financial position with any property every 2-3 years. Therefore, you should be selecting a loan for the benefit of the first two or three years. If your position is still strong, it may be a good time to refinance the property after 3 years. You will have the option to capture and leverage the appreciation or secure a longer term loan at a lower loan to value.

Second, multi-family residential loans are on the higher end of the lender‘s pricing model due to the risk involved with recovering a property in default. Here are some things to keep in mind when evaluating your options.

Be aware that any fixed rate loan will be substantially higher than you will see on a primary residence. Unless you choose to pay a discount point to buy down the rate, it is better to stay with a shorter term ARM loan, which will have a lower rate creating greater cash flow.

Cash Flow is King when it comes to selecting a loan for a couple of reasons.

The more down payment that you can make, the lower the interest rate and the greater the cash flow.

The second reason is that when buying a new multi-family property, there can be turnover in tenants in the first few months of ownership. If your loan has a low minimum monthly payment, you can handle the vacancies that may occur from time to time without having to dig into your pocket to make a payment. If you experience low vacancies, take the monthly income and reinvest it!

Your profits then become exponential.

Multi-Family / Commercial Pre-Qualification Checklist

The following items will be needed in order to obtain a pre-qualification.

  • A personal financial statement dated within the last 60 days
  • A tri-merge credit report dated within 60 days. (Lender will pull)
  • The last 2 years and year to date income operating expense statement for the property-if available.
  • If more than 1 unit, a copy of the rent roll dated within the last 60 days.
  • A copy of the purchase contract and earnest money check if applicable.
  • A brief summary of the loan requested, which should include who, what, where, when, why, and how. (Lender will complete)
  • A resume from the Borrower showing Landlord / Investment experience.
  • Digital color photos of the property. (Inspector or Agent to provide)
  • The way that the Investor will hold title-entity etc.

 Investor Financing Options

The following are an example of financing options available through our referral partners for fix and flip investments.

Traditional Fix and Flip

  • Portfolio Rehab Loans up to 80% of purchase price plus 80% of repairs
  • 10% to 11% Fixed Rate, Monthly Interest Only, 2% Origination Fee, 6 Month Loan with Automatic 6 month extension (extension fee of .33% begins month 7)
  • Properties may be titled in LLC’s, Corporation or Partnership. Loan is underwritten on the strengths of the individual and the ability to complete the project. Many are not based on the strength of the individual.

Lower Fee Fix and Flip

  • Portfolio Rehab Loans up to 80% of purchase price plus 80% of repairs
  • 16% Fixed Rate, monthly interest only, $1000 Origination Fee, 6 Month Loan with Automatic 6 month extension (extension fee of .33% begins month 7)
  • Properties may be titled in LLC’s, Corporation or Partnership. Loan is underwritten on the strengths of the individual.

Self-Directed IRA

  • Portfolio Rehab Loans up to 65% of purchase price plus 65% of repairs
  • 11% Fixed Rate, monthly interest only, 3% Origination Fee, 6 Month Loan with Automatic 6 month extension (extension fee of .33% begins month 7)
  • Loan is non-recourse to the individual (however loan is underwritten on the strengths of the individual).