Commercial this a good deal?

Asked by newinvestor, 91106 Wed Mar 17, 2010

I just got an offer for a 5yr ARM with the following specifications. Does sound like a good deal?

Property: 6-unit apartment building in Los Angeles
Loan amount: $430K
1 point
60% LTV
Rate: Fixed: 6.10% (fixed) then 6-month LIBOR 2.75% (variable)
DSC: 1.4
Guarantor has 800 FICO score.

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BOB Khalsa, Agent, Newhall, CA
Wed Mar 17, 2010
What about prepayment penalties and is there any lock out period? These are important in case you want to refinance. Otherwise the terms look fairly good. As regards the DSCR or Debt Service Coverage Ratio being 1.4, if you are a first time investor getting a commercial loan and have not managed commercial properties earlier, then the ratio is OK. A sophisticated investor should be able to get a lower DSCR but it would also depend on the vacancy rate for the area, condition of the property and where the rents are sitting today as compared to the market.

Lastly do remember that if you are planning a long term hold, when the interest rate adjusts after 5 years, you could be in for a shock since LIBOR is expected to go up. During the last recessionary period LIBOR touched 9% in 1989-90, so even if it goes say to 7% you are than looking at an interest rate of 9.75%. Sure you don't want to look at a longer term fixed rate product? If you are planning on a hold of 5 years or less and the prepayment penalty extinguishes earlier then the short term fixed rate is OK.

Bob Khalsa, CCIM
President & Broker
United America Realty
1 vote
Robin Silver…, Mortgage Broker Or Lender, Garden City, NY
Wed Mar 17, 2010
That is not really a bad deal. Many people think they are going to get a 5% rate on a commercial loan, but that just doesn't happen any more. You may want to shop around though to see if you can do better, or get someone to do it without the point. Have you inquired directly with a bank, or is this through a mortgage broker? You best bet for something like this is a small local savings bank. Also, not sure what you mean by DSC. Are you talking about the debt service ratio?
1 vote
Edward Uriar…, , Pasadena, CA
Wed Mar 17, 2010
That does appear to be at Market for Commericial Multi units at todays rates.

Edward Uriarte
0 votes
Boris Aivazi…, , Glendale, CA
Wed Mar 17, 2010
There is many factors involved on commercial properties, type of property it’s , location, condition, income, loan amount, owner occupied, etc. some time you will get a better deal when your loan amount is over 500k and its an income producing property, some properties know day you can’t even get a financing now days.
0 votes
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