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Old 01-21-2009, 11:12 PM
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What is the difference in financing cost between a 4plex (treated as a non commercial prop) and a building with more than 4 units (that is considered a commercial property)?
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Old 01-22-2009, 02:52 AM
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for one thing it depends where..... in some places you may fall under rent stabilization laws with more then a certain amount of apartments
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Old 01-22-2009, 06:18 AM
Location: Hernando County, FL
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A couple of things may happen.

The loan may be amortorized over 20 years instead of the 30 you can get with residential.
The down payment may also be higher.

A lender could best answer this, you may want to have this moved to the mortgage forum.
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Old 01-25-2009, 11:40 PM
Location: Cary, NC
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It is not only a matter of cost, but a matter of qualifications, rates and terms. There is a large difference between residential and commercial financing.

Residential has the traditional factors you probably know. Underwriters look at credit score, debt/income ratios and months of reserves. Down payments can be as little as 20-25% and there are standard 30 year fixed mortgages.

On commercial, underwriters will also look at the rent rolls on the property and net operating income statements for the last 2 years. They want to make sure that the property will make enough income after expenses to cover the debt payments plus a safety margin. Typically, 20-25 year amortization is the maximum, pre-payment penalties and adjustable rates are the norm. You won't find many fixed rates or 30 year terms, and the interest rate and costs are much higher.

The process also takes more time and there can be far more upfront fees. As the process is more complex, the lender will want to collect application or other fees once they provide a letter of intent (which is kind of like a pre-approval).

Hopefully you understand the fundamentals of residential investing, financing and property management before you enter the commercial world. I have seen a lot of unprepared people and commercial properties are not the place to learn unless you have a business partner with experience. Also, work with a Realtor, attorney and lender that have experience with commercial properties.
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