Real estate investing

duplex, villa, rendering-1026381.jpg

Multi-Family Investing
Posted by: B Miles Jul 26 2004, 09:11 AM
I am new to any sort of real estate investing outside of currently owning my own home.

I have been looking for a duplex to owner occupy and came across a larger property this last week. However, once over a four plex, the loans become commercial. I intend to owner occupy for 1 to 2 years.

I have found a property that has both a tri-plex and a four-plex on it, so it is considered a seven-plex. However, I am not familiar with commercial real estate investing. Can someone start me out with some direction, even if this seven-plex property is outside of my realm? The lender for my home, a personal friend, recommended I stick to a four-plex or less becuase of inexperience, but I am still very curious.

What are realistic terms and rates for loans in Oregon? CLTV?

Thank you!
Posted by: loanuniverse Jul 26 2004, 02:01 PM

You are right, anything over 4-units even if it is partially occupied by the borrower is considered commercial. On the other hand, a duplex can be considered commercial if the owner is not going to live there.

The main difference between a commercial loan and a regular residential loan is the source of repayment. While the residential loan will use your personal income as the source {either partially or fully}, the commercial loan is looking for the Net Operating Income of the property as the repayment. You might want to take a look at examples of how to calculate NOI and debt service around the website.

I am as far removed from Oregon as you can possibly be and still remain in the continental US, but terms for income producing property are similar everywhere. You are probably looking at the following:

– A maximum loan-to-value of 75% to 80%.
– A maturity of 5 to 25 years with amortizations from 15 to 25 years.
– A rate from 5.50% to 9.00%.

Another thing to remember is that unlike the residential loan market that is dominated by the 15-year and 30-year mortgage products, commercial lending is very flexible.

Good luck.
Posted by: Commercial Lender Jul 28 2004, 02:28 AM
Hi Miles! U said that there is a 4-plex and a 3-plex making it a 7-plex property. If it’s the same title, that would be 5+ units making it a commercial property. If they are separate titles (1 for a 3-plex & 1 for a 4-plex) then they would not qualify as commercial. You may own a 3-plex and refer to it as a commercial business (to pursue business financing) and it may even be located in a multifamily zoned area but almost all commercial lenders will not consider it a commercial property. If you decide to pursue the purchase of anything less than a 5 unit, your best bet would be your local bank or credit union.

My suggestion would be that if you are getting into multifamily properties, why not pursue a straight commercial one. It eliminates some problematic issues in the long run. In terms of managing it, there isn’t much difference between 4 units and 7 units. If you have the fund to cover the missing LTV and if the debt service is there, pursue the deal but do critically check out the property in terms of structural soundness and potential repair expenses. Multifamily properties typically get the highest LTVs. The industry standard seems to be 75%. We provide a max CLTV of 90% and I believe some lenders will also go as high as 80% LTV on a Full Doc loan!
Author: Commercial Loan Underwriter