Right now, we’re going to talk about commercial lending.
René Nelson, Eugene commercial real estate broker
Marcia Edwards, Eugene residential real estate broker
Marcia Edwards: Joining me again today is René Nelson. I’m honored to have René because she is the premier realtor for talking about multi-family units alongside the others at Pacwest Commercial Real Estate. Thanks for joining me, René.
René Nelson: Thank you, Marcia. We’re going to talk about my favorite subject which is lending.
Marcia Edwards: Yes. We’re going to start with lending because we need to start with lending. If you want to do something next year, let’s talk about what you can do, and you’ve got to leverage smart, not too far out and not too tight to the cuff to optimize opportunity. Wouldn’t that be true?
René Nelson: That is totally true. So let’s talk about the buyer that we’ve been using kind of as a case study. He called, he has a single family property, wants to 1031 exchange into multiple units, probably a 10 to 15 unit was what we identified. I knew that I was going to send them to you to have you sell his single family property, to get the down payment for the bigger property that we were going to buy, but he also needed to go see a lender, so I referred him to Isaac Grant at Oregon Community Credit Union to have him get approved for a commercial loan.
Marcia Edwards: And there’s a lot to that, isn’t there? The commercial lending for investment property, the game’s gotten a little more complicated.
René Nelson: Very much so. After COVID and the new tenant landlord laws, especially where tenants could not pay rent, if they were in a tough situation, Fannie Mae across the United States made a rule that when a buyer closes a transaction, in addition to their down payment… Let’s back up real quick. On a commercial loan for an apartment you typically need 30% down, that you should just figure 30% is your down payment, and then you’re going to need about two to 3% more for closing costs, appraisal, title and escrow, but now you also need to have reserves.
Marcia Edwards: This is a reserve account that they can call upon. Does a lender hold the reserve or where is this reserve? Is this cash that you’re going to put in their account?
René Nelson: Yes, it is cash, because here’s the deal. You’re going to park six months worth of PITI reserve with the lender.
Marcia Edwards: Principal Interest Taxes and Insurance reserve accounts. That’s a pretty hefty account. Does that eliminate a lot of the investors out there?
René Nelson: Most of the investors that I deal with have the financial wherewithal to do that, but if somebody’s coming from a single family property and now they want to buy 10 units, we may have to scale that back to five or eight units so they could actually have that reserve, because it is a requirement.
Marcia Edwards: Isaac Grant is a safe place to go for such a conversation, I imagine?
René Nelson: He’s very good at what he does. 100%.
Marcia Edwards: He’s at Oregon Community Credit Union.
Join Eugene, Oregon, real estate experts: Bob Nelson, Real Estate Investment Broker with Pacwest Real Estate Investments, and Marcia Edwards, Residential Real Estate Broker with Windermere Real Estate, daily at 5:30pm on KPNW for the “Real Estate Today” radio show.