Financing Question
This is a bit of a repeat of a post from the Multi Family Forum as I'm looking to purchase a 7-unit complex.
This is a property I would like to buy and hold for 10 or 15 years or more. I am finding financing that is offered are short-term (1-yr, 3-yr and 5-yr) ARMS. My question is what is the best way to analyze a deal like this in regard to interest rates?
For example a good deal at a 7% 3-yr arm is just an ok deal at 7.75% 5-yr arm and if 5 years down the road rates are 9%, it will be a bad deal. What type of tolerance do I need to build into my analysis of a commercial property I plan to hold long-term?
I think the key this is going to be shop the lenders.
I have seen vastly different programs offered by out of state lenders v. local lenders. The $ size of the deal is an issue too.
I found an 8% fixed rate for a like sized deal, but 5-7% and 3-15 yr fixed if it was a 1.5M loan
You may want to shop local bank commercial departments. Not about your area, but every bank in my area typically offers about the same loan. That would be Prime + 0-1% (depending on your financial condition and the deal itself) on a 5yr ballon. I've had some banks put on free caps at 6% and 6.5%. They are generally more attractive now than the short fixed period arms if you can get a good cap in place.
If you are going to hold the property long term, why not get a 30 or 40 year loan with a fixed rate? With an arm you may save a few bucks up front, but with interest rates on the rise, you're better off fixing the rate now. Many commercial loans are assumable, this will be a great selling point for a future buyer as well.