multi family commercial mortgage basics
DESCRIPTION
This 15 slide presentation illustrates the basics of a multi family / investment property commercial mortgage loan. For more information, or to discuss a specific property, please call Commercial Funding Network in Niskayuna New York at 800-503-1972.TRANSCRIPT
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Multifamily Apartment Building Financing
Prepared and Presented by:
Daniel G. AlcornCommercial Funding Network, Inc.
518-346-2115
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• Formed in 1999 by banking executives with experience dating to the ’70s.
• 1999 to 2003 - Located in Vermont
•2003 - Relocated company to Niskayuna, New York.
Daniel G. Alcorn, company founder and President, served from 1984 to 1998 as Senior Vice President of VT based Chittenden Bank.
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Commercial Real Estate Finance
Multifamily Apartment Building Financing
• Who lends money on income producing properties?
• Are all multi family properties the same?
• Underwriting the three “C’s”
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Multifamily Apartment Building FinancingWho lends money on income producing properties?
• Banks• Savings Institutions• Credit Unions• Commercial Lenders• Insurance Companies• Pension and Retirement Funds• Note and Mortgage Buyers (purchase mortgages)• Self Directed IRA and Roth IRA• Private “hard money” lenders• Friends and Family members
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Multifamily Apartment Building FinancingWho lends money on income producing properties?
Small Business Administration 504Requires meeting job creation, community
development or public policy goals
10-20% Equity
SBDC makes SBA guaranteed loan up to 40%
50% lender, secured by 1st position
Long term fixed rate financing
Removes uncertainty of balloon refinancing
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Multifamily Apartment Building FinancingAre all multi family properties the same?Do some lenders prefer certain properties?
• Loan Size and Cash Out (refi)
• Owner Occupied vs. Investor
• Zip Code: 25,000 population and / or within range of metro location
• Number of Rental Units• Minimum 3 (stated income)• Minimum 5 (conventional)
• Nature of Rental Units • monthly vs. lease contract• rooming house• square footage / unit
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Multifamily Apartment Building FinancingUnderwriting the “ three C’s”
• 1 - Credit Rating
• 2 - Collateral
• 3 - Capacity / Cash Flow
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Multifamily Apartment Building Financing
1 - Credit Rating
• FICO Credit Score
• Revolving Debt BalanceCredit Line Pct Used / Available
• DTI – Owner’s Personal Debt to Income Ratio
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Multifamily Apartment Building Financing
2 - Collateral
• Sales Comparison Method• Market Approach• Recent Sales• Similar Properties
• Income Capitalization Method• Discounting the value of all future net income
• Loan To Value • Private lenders 60 to 65%• Normal 70 to 75%
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Multifamily Apartment Building Financing
3 – Capacity / Cash Flow
• Full Documentation• 2 years Business Tax Filings • 2 years Personal Tax Filings• Interim Income Statement and Bank Statements
• Limited / Stated Income• Cash Flow from investment property, owner
occupied business and / or personal
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Multifamily Apartment Building Financing
3 – Capacity / Cash Flow
• Full Documentation• 2 years Business Tax Filings
• Form 1120 or 1065
• Net Income• + depreciation• + interest expense• + amortization • = cash available
• Debt Service • Existing P&I payments • Existing lease payments• Proposed payments
• Coverage Ratio 1.20 : 1.00• Cash : Debt Service
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Multifamily Apartment Building Financing
3 – Capacity / Cash Flow
1. List each tenant with unit rent and square footage 2. Determine gross monthly income3. Subtract actual or assumed vacancy factor
4. Equals Adjusted or Effective Gross Income
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Multifamily Apartment Building Financing
3 – Capacity / Cash Flow
From Adjusted / Effective Gross Income
Subtract Actual Property ExpensesReal Estate TaxesProperty InsuranceWater / SewerTrash RemovalSeasonal Snowplowing / Landscaping
Subtract Assumed or Actual Property ExpensesReplacement ReserveRepairs / MaintenanceJanitorial / Third Party Management
Equals Net Operating Income
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Multifamily Apartment Building Financingexample:
26,690 / 1.20 DSCR = 22,242 annual P&I payments$1853.47 monthly
Net Operating Income $26,690
$1853.47 monthly
8% interest rate
20 year term
$221,590 mortgage
Quick Test:
Is an investor interested in earning 10%?
(If so, the $26,690 net income is 10% of $____________.)
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Multifamily Apartment Building Financing
Daniel G. AlcornCommercial Funding Network, Inc.
518-346-2115 w212-658-9003 f