Rental Property Loans
Posted 18 June 2012 - 07:09 AM
What are our options - we have not been hurt by the adjustable rate yet - just reset in Dec 2011 - but would like to get a fixed rate for piece of mind and to set the loan expense.
Posted 20 June 2012 - 08:05 PM
The problem with using an LLC to hold your property and trying to get regular residential loans is that most of those loans are packaged together and sold to investors in the secondary market. Investors do not allow other than natural persons as the borrowers. My guess is that the bank that is giving you 3 year adjustable loans is keeping them for its own portfolio.
What can you do?
Well the answer would be to go commercial. However, you might want to ask yourself if this is something that you want to do because it will almost surely result in an increase in interest expense over your ARM. Even if you get the hungriest community bank, you are probably looking at half a point in closing fees, and a rate between 4.5% and 5%. You are also looking at a possible 25 year amortization, and a maturity of no more than 10 years.
To top it off your loan-to-value would have to be 75% or better and your debt service coverage has to be at least 1.25 times. Furthermore, the bank will probably ask you to guarantee.
You need to talk to a commercial lender. Go with a small community bank, and run a spreadsheet before you meet the lender.
Posted 24 June 2012 - 10:03 PM
The last reset was at 5.5%. On new loans we can get them for only $350 bank fees plus usual title company fees and appraisals, 20% down,25 year amoritization and 25 year maturity but adjusting every 3 years. From your response, perhaps we are doing that badly with the loans.
Can get them pretty much done with a phone call and a hand shake.
Posted 25 June 2012 - 10:07 AM
You do not mention how long you have had the properties, how many you have or if the current loans have prepayment penalties. Those are all factors that will affect your ability to refinance.
The length of time that you have owned the properties will give you an edge on the loan-to-value. In fact, it might be possible that you can even take some cash out at this time without impacting your current monthly payment. This would be particularly true if any of the ones that had their rate reset were bought in 2008 near the bottom of the multifamily market.
I am not sure what kind of relationship you have with your current banker, but you can do things two ways:
1- You can just ask your current lender about a modification of your existing loans to ones with longer terms between resets and a lower premium. You say that they reset every 3 years and the last reset was to 5.5%. What is the base rate? 3 year treasury or 3 year swap? Whichever one it is, you are looking at a premium of about 5%. Ask that your rates be reset every five years using the five year treasury or swap, and that the premium be reduced to 3.5% or 4%. That alone will give you peace of mind and save you some interest expense.
2- Approach another bank and ask for a regular fixed rate loan. Take into consideration that there will be expenses associated with getting another loan to payoff the one that you have. Doc stamps, commitment fees, attorney fees, appraisal fees….. etc. This is why I like dealing with your current lender instead of going with another. On the other hand, you could get the other lender to provide you a term sheet, and use that to ask concessions from your current lender.
There is a lot to like about the way that your current lender structures your loans. Fees are low, you get a long maturity so you do not have to worry about having to refinance and having to spend money on fees and appraisals every few years. On the other hand, the three year reset makes it uncomfortable in the long run because I still remember when the three year treasury was almost 7%. To top it off you are paying them a high premium over whatever base rate they are using. Get them to extend the reset to five years and some concession on the premium, and I would stick with them.
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