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?

Comments(3)

  • cjmazur17th June, 2004

    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

  • c5hardtop9th July, 2004

    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.

  • keymtn2nd August, 2004

    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.

Add Comment

Login To Comment