The Money Mustache Community
Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: savingstldad on July 10, 2015, 09:15:56 AM
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I am considering buying a 9 unit property, but to get it I have to use a commercial loan. This is my first foray into rentals, so I'm not very comfortable with the terms. The loan would be a 3 year loan with a 20 year amortization. This makes me uneasy, because the bank could decide not to renew the loan after 3 years and ask for the entire amount (which I can't afford).
The other option is a 4-plex with a standard 30 year loan at a slightly lower rate. The 9 unit is the better deal I think, but the loan terms are giving me cold feet.
Does anyone have any experience with these 3 year loans with 20 year amortization? The bank sounded like they do them all the time, and unless there is some major issue they will just renew it around market rates every 3 years.
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I had to get a commercial loan in 2011. The rate was "renegotiated" every five years. I too was worried about this process, so I refinanced it 2 years ago to a 15 yr amortization fixed rate loan. (wells fargo had an offer going at the time) I suspect they wouldn't refuse to continue the loan though, bc then they would maybe have to forclose on it, which banks do not typically enjoy. I think the main reason they do it that way is so they can reset the rate. If you do take the loan but plan on refinancing, check the terms to make sure there is no prepayment penalty. I got shafted on that one but still chose to refinance bc it was worth it even with the penalty. Good luck! I think sometimes better deals are had on buildings that require commercial loans bc most people do not want to bother with them or do not have the capital for the down payment for a larger property with a shorter amortization. Although, I have not found any such deals in my area lately...everything seems overpriced!
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Thanks for the reply srob. That is almost exactly what I'm dealing with right now. The loan terms will in fact have a prepayment penalty. I'm figuring if I want to refinance it badly enough, I can just wait for the 3 year term to end.