Posted by MARK,VA. on January 09, 2003 at 17:16:32:
HEY, I’M NEW TO THIS SITE AS WELL AND CAN TELL YOU THAT AN HONEST ANSWER SHOULD BE COMING VERY SOON. I’VE POSTED 2-3 QUESTIONS AND HAVE HAD EXCELLENT SUGGESTIONS SENT BACK. IF THERE’S A WEB SITE THAT CAN PROVIDE HELP…THIS IS IT
GOOD LUCK
MARK
financing options for a 12plex purchase - Posted by MaryL
Posted by MaryL on January 09, 2003 at 16:24:15:
Hello–this is my first time on your site and so far I love it. My question is somewhat similar to that sent in by Joe S earlier today:
We want to purchase a 12 plex, and here’s some info on the property.
Built mid-1970s, all brick, has new roof and some updating. Seller is asking $595k. Units are 2 bed/1bath and are all occupied at rents of $515/mo (except onsite manager–we don’t know how discounted his rent is). Tenants pay all their own utilities except exterior lighting, sewer, and garbage.
Though our experience isn’t enormous, we think this is a good deal. The rents are normal for the area. (BTW, to any who might be interested: I think realtors LOVE to tell prospective buyers that the rents are low and could easily be raised. But don’t you take their word for it. You don’t want your rents above market or you may have trouble filling your units. We have a four-plex that’s always full–next door to one whose owners ask $25 more a month and have what seem like perennial vacancies.)
Anyway, here’s the financing question:
Most lenders seem to want 25% down for a commercial property purchase. We will have about 50K to put down on the 12-plex after we close on a condo that we’re selling. (now under contract–hope it goes through!) What is the best option for financing the remainder?
We have 80K equity in our fourplex and could tap that–but do they let you pull all the equity from one investment property to buy another? If someone agrees to do it, will we pay exorbitant interest rates?
If an equity loan isn’t wise, is there 90/10 financing anywhere for a property like this? We could get 10% down without too much trouble.
The seller wouldn’t prefer to do any financing himself, but he said he might consider it (probably with a full-price offer). We haven’t asked for seller financing before and aren’t sure we should.
In sum: If you were in our position, would you tap the equity in the fourplex, ask for seller financing, search for 90/10 financing (if there is such a thing), or wait and buy something later?
THANKS A TON!!
MaryL
Re: financing options for a 12plex purchase - Posted by JEscobar
Posted by JEscobar on January 11, 2003 at 23:52:12:
Commercial Lender here based in Ca.
Most lenders will ask for 25% down on the deal, standard for finance, and will be based in the income of the property under something called DCR or Debt Coverage Ratio: this is a factor of the Net Operating Income vs the Annual Mortgage Payment. In other words, the deal must cash flow for the loan payment. Terms are 30 yr and will be ARM rates or Fixed for short period of time like 3 , 5, 7, 10 yrs. This is a commercial loan and will require a more expensive appraisal report and fees.
Full documentation, and need to show the funds are coming from bank or sale or equity of property. Also, need to show 3 to 6 month cash reserves = monthly payments.
Now, what State and city is the property located?
Ask them for the current income and expense statement and the prior 2 yr income/expense statement signed by the seller, and copies of the rental agreement with Estoppel Statements to verify the rents and deposits. Just ask them and they need to supply copies of the information to perform your due diligence of the property and see of the property makes any financial sense for cash flow purposes and long term goals for the deal.
There is no 90-10 finance for this commercial project from any commercial bank or local bank. Does not exist.
The only option is 70 or 75% LTV, then a seller carry back note for 2nd position for 5% and you come in with the rest. Very Standard, and the rates are from 5.5% on up depending on the fixed rate period. Fee is still 2 pts and standard in the business.
The 2nd option is a stated income loan with a 20 term, that allows the seller to carry back a higher amount to a max combinded LTV of 90 %. Rates range from 9 to 11 % for this deal and the points are 2.5% here.
The 3rd option is a stated loan with a lender based in Ca who will do 70% LTV, 30 yr term, and will allow to seller to carry back all the way to 100%. The rate is 10.5%, and 4% pts.
As you can see, the fees and rates are more expensive for commercial loans, and will require a bigger down payment into the deal. Ask for the seller carry back 2nd note – this will help in closing the deal if they say yes.
If you need additional information email and we will send our office 800# for additional assitance and questions.