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Refinance of Commercial Apartment Building

Hello All,

I am a residential real estate investor who is looking to get into the commercial arena. Specifically, I am looking at buying and rehabbing a 5-10 unit apartment building with hard money, then refinancing with cash out and keeping the building as a long term hold. I don't have substantial personal income, but the income from the property will be more than sufficient to cover the debt service of the permanent loan and the permanent loan will be less than 65% LTV.

My credit score is a 645 with no late payments judgments, collections, etc. I am hearing that no lender will refinance me because I lack sufficient personal income to cover the debt service, then I'm hearing that my personal income won't matter if the property has a healthy DSCR. I need to know the truth so I can formulate my strategy accordingly. What is the truth? Thank you.

-Chris 
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March 02 2011 - Philadelphia
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Answers (8)

I don't know THE answer but I do know the questions;

How much would the property sell for as-is?

How much is it going to cost to rehab?

How much will the property really sell for after the rehab is complete?

What are your exit strategies?

Is there enough juice in your deal to even consider going with hard money? 

How much money are you putting in to the deal?

What about fha 223/232 programs?  Have you applied?  Do you qualify?

Why is your credit score only 645?  Will a lender even look at you?

Have you worked with the hard money lender before?  Are they going to give you the money you need when you need it?

If you can answer these questions for yourself then you will know THE answer to if this is a deal you should be getting involved with.
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March 03 2011
Chris I don't think you are in a good position to pull this off according to your plan.

I think you'll need to hold onto this property with your hard money loan for about 3-years before attempting a refinance. You want to be sure your hard money loan and your monthly payments are reported to the credit repositories. You also have to go to work on your credit score to were you at least attain a 680 FICO Score along with building up your liquid assets.

Happy funding, Rudi
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March 03 2011
Generally speaking the financial institution should take 75% of leased income and use it for quailifying for your loan..... since they are interested in garauntees you will need signed / executed leases. You will also need to provide them with expenses for the building (utilities, insurance, landscaping / snow removal, maitenance etc.).  Requirements for loans and rates change often therefore it behooves you to speak directly to the loan institution (develop a relationship with the loan officer), they maybe able to help you with different loan programs including state, federally as well local monies that are available to you.
Regina
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March 03 2011
Hi Chris,

The challenging thing right now for you is going to be that lenders are changing their underwriting standards almost on a weekly basis due to the current market challenges facing the commercial and multifamily markets. I do think that it is going to be difficult to get a loan at any LTV if you cannot support the payments with income from a source other than the property that you want to buy. The lenders on a property that small will most likely underwrite your desired loan with a large vacancy factor whether it is leased up or not. Sorry for the grim news.
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March 02 2011
I have financed Aquisitions like this It all depends on your LTV, LOAN AMOUNT, CREDIT,CASH RESERVES, 
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March 02 2011
Chris,

I think it's important that you understand the bank's perspective regarding income.  IF you don't have sufficient income to pay back the loan you simply won't qualify for the loan.  

How are you qualified to pay this loan back? 

You don't state the amount of cash reserves you have.  Do you have any experience as a landlord or property manager?  How much does the property currently appraise for?  What would it appraise for if it were rehabbed?  What type of rental potential do they have? 

These are all important factors as well that will play into the mix.  You may want to keep doing some research so that you can be well prepared for such an exciting and rewarding endeavor. 

 
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March 02 2011
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Thank you for your reply, Michael. The loan size will be about $200k to $250k.
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March 02 2011
One of the ways commercial differs from residential is that decisions require more paperwork.

Many factors here.  Seems like there is a way to get this financed.  but the exact details matter.

Loan size is also a major factor.

Let me know if i can answer more questions for you.
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March 02 2011
 
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