Looking for advice about loans and to whether I should wait out the market
Hi Everyone, 

I have a few questions. 

1. Im looking to buy multi-families that are 5+ in the near future and want to know how much liquidity I would need to keep and what is the usual down payment for commercial loans? I had one bank tell me that they were expecting 40% and from what ive seen online most wanted between 15-25%. 

2. Will I need a business plan for these loans? 

3.Should I wait a year or before purchasing? (See how the market and rate do or just dive in anyway)

4. Good loan companies for someone starting out? I do have one rental and recently sold 2 homes but have never applied for a commercial loan or owned something with more than four units.
[{"id": "ioid78y", "text": "There is no such thing as a bad time to buy real estate.", "replies": [{"id": "ioj0o4v", "text": "Whoever down voted this, should immediately get out of the business.", "replies": [{"id": "iojb8kw", "text": "Buying class A multi family in Ukraine right before Russia invades. Buying a casino in Havana right before Cuba nationalizes foreign owned property. Lookup Danny Fowlie in Pavones Costa Rica. Guy had millions of dollars worth of property taken from him in a corrupt country with weak private property rights. Extreme examples obviously but your sentiment is asinine", "replies": [{"id": "iojoa1v", "text": "I don't believe I mentioned \"where\".\n\nI mentioned \"what\".\n\nYou probably wouldn't be altogether successful finding skaters for a hockey team in Tijuana.\n\nIt doesn't make hockey a failed sport.\n\n(Those who are successful in life, can intuit that ice cream will sell better in July, than in January).\n\nThere's a reason the CEO for IBM placed a placard that said simply \"Think\" everywhere his employees walked.\n\nIt's a good word.  You should give thought to reciting it quietly to yourself occasionally.  At least daily.\n\nIf you're considering a future in real estate, you should consider a different business.", "replies": [{"id": "iok4wus", "text": "Word I\u2019ll definitely liquidate my portfolio next week because I don\u2019t think 2006 was a great time to buy a house or 2019 was a great time to buy CBD office. Thanks for this wisdom. I\u2019m clearly in the wrong industry", "replies": [{"id": "iokan35", "text": "You're quite welcome Ron.  More than happy to assist. It's okay to not know some of this stuff.\n\nI bought 2 houses at the peak (2007).  2 years later they were worth less than 1/2 what I paid for them.  Still, renters paid the cost of owning them the entire time. (I still own one of them).\n\nThey're worth triple what I paid for them (and not quite 6 times what they were worth at the low).  Seems like that was a fairly fantastic time to buy real estate.  Would have done better buying it 4 years earlier but, I'm feeling okay making 3 times what I paid.  Maybe you feel that's not an ideal profit.\n\nI guess I'm just not terribly greedy.  300% seems okay to me.\n\nSome of the folks on that same street felt the same way you do and mailed in their keys in 2008 and 2009 (they're not very happy today).\n\nAs to CBD office, in your market, I couldn't make a case for (or even defend) what your experience was (or is).  Probably was a better time to buy industrial (although in Seattle and surrounds, it's still a good time to buy CBD.  I'm told that folks who bought in Manhattan in 2019 did quite well with recent sales.  I'm not one of them.  I know nothing about that particular market).\n\nI concur, 2019 (or now) is a less than ideal time to buy office (CBD) product.  There are other real estate products that would appeal to me more today.  But if I had unending supplies of cash (and time, which I'm running out of), this is a spectacular time to buy office.\n\nLiquidating your entire portfolio sounds a bit extreme (and indicative of needing a few more skill sets in real estate.  Fear not, those will come with time and practice.  This doesn't come to everyone overnight Ron.  Patience is a virtue), however, if you need cash, this may be a good option for you Ron.\n\nPerhaps rethinking the products you're looking at would be a better option for you.\n\nSounds like that might be advisable.", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ioj6196", "text": "Commercial lending is not as uniform as say trying to get a conforming residential loan for your own house. Different types of lenders have different risk appetites. For the most part, commercial banks are conservative when they lend compared to the non-bank lender that might be willing to lend you for a property that is underperforming in exchange for a higher rate and lower LTV.  \n\nMy guess is that this lender that you spoke to saw you as an inexperienced sponsor that might not have deep pockets, and figured the only way that I am going to get this past credit is to come in at 60% LTV. You do not need a business plan, but you need a reasonable pro-forma P&amp;L that shows you are going to be able to make debt service. If the property needs improvements you need to show that you have the funds for these capital expenditures.  \n\nTiming does impact purchases in the sense that a higher rate environment means that you will have  to come up with a higher equity contribution to make the deal viable reducing your return on investment. The lender specially a commercial bank lender is always going to want a cushion on the debt service coverage. You can protect from further increases in rates by either getting a fixed rate loan or entering into a SWAP. We love those, because we make money from them and get to book the whole profit on year one.  \n\nYour best bet is a small local bank or credit union that does small loans in your area. Go to their websites and they will have listed the type of lending they do. This type of lending is usually very common in small lenders as it is easy to understand, underwrite, and is safer since it has tangible collateral.", "replies": [{"id": "ioj93sw", "text": "Ive seen a change recently &amp; most banks lending based on debt service coverage ratio and not LTV.", "replies": [{"id": "iojeufx", "text": "LTV will always be a consideration in a loan granted by a regulated bank since they have to be compliant with supervisory limits. In the case of multifamily the limit is 85%. A lot of the banks have internal guidelines that are more stringent than that. My prior employer would require significantly lower LTVs if we were doing anything non-recourse.", "replies": [{"id": "iojhmj4", "text": "True, what I\u2019m saying is I\u2019ve noticed that DSCR has started to become a bigger factor in loan approval since rate increases vs a year ago. Of course LTV is always considered. Point being Ive noticed lenders have changed perpective", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "iom2xr6", "text": "Thx for tips. I will definitely look into smaller lenders.", "replies": [{"id": "ionulh5", "text": "As a small first time investor you will benefit from doing a lot of the maintenance and running of the property yourself. It can be done on a part-time basis but it will help being handy as well as knowing landlord law and some basic accounting.  \n\nI am sure that there are some forums out there that would have a lot of practical knowledge for a beginner. I find this particular subreddit directed more towards bigger deals than what you are probably looking for as well as info about office and industrial, which is a different animal when it comes to terms and tenants.  \n\nAlso consider bringing in limited partners for the equity if you are short. Good luck!", "replies": [{"id": "ioqddi8", "text": "Thx", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "iojnaas", "text": "Note: I'm assuming US real estate below as someone apparently got ripped in the comments for not clarifying.  \n1) Local banks may vary - Regional and National banks I'd expect to have at least 10% of the loan amount as liquidity and net worth at least at the loan amount. On most bank loans, especially smaller ones, expect recourse, perhaps some sort of a global DTI ratio. Also many want a depository relationship; ie moving large chunks of money to their bank.\n\nAgency debt and balance sheet lenders - I'd expect at least 10% of the loan amount for liquidity and 100% of the loan amount as net worth. Just hitting the mark won't do it..They are looking for strength so it's best to show well above the net worth/liquidity minimums in your package.\n\nYou'll be hard-pressed to get a 15% down payment on multifamily and make the numbers work in this environment. Perhaps a bank may allow some sort of earn-out as you renovate and increase rents. Otherwise, I'd be wary of 15-20% down payment money even if it was offered. Just because they offer it, doesn't mean you should take it. Real estate fundamentals and conservative UW is key right now. You have more stakeholders than just your pocketbook and a well run, safe community is key. Expect at least 25-35% down depending on the lender, location your credit package etc..\n\n2) Yes, but not a general real estate company business plan (although you need to submit your real estate bio/track record). A detailed plan on how you will operate, renovate the property, and most importantly exit the loan.\n\n3) How much cash will you lose to inflation if you sit on the sidelines and don't get your money working where you want it? People are buying and selling right now, there's some disconnect on the bid/ask side with buyers and sellers and the loan market is in flux, but your work remains the same. Find a good deal at a price that will whether the storm and isn't paying a massive premium to sellers (read 2021 prices) on future rent growth.\n\n4) This is deal-dependent but some things come first in my opinion..locate a market or two to concentrate on -- do your market-level diligence so you know it inside and out. Make connections with property management companies and brokers in the market. You might poke around with a commercial mortgage broker. THEN start finding deals in the size and type that fits your plan...then when you've found a deal that seems to work locate a good mortgage broker or bank. *I've seen many chasing rabbits all over the country because they learned something in a course and believe that it's about the deals and not other fundamentals like the market.*\n\nGood luck on your journey!", "replies": [{"id": "iom4wc8", "text": "Great info, thanks for taking the time to reply. I will take your advice and get this going. The sideline is boring. I do have my real estate license and plan on reaching out to property management companies.", "replies": [], "depth": 2}], "depth": 1}]