I am purchasing a large commercial building for investment. First venture of this scale. Price is 2.8 million.
Bank 1 has offered 3.65 APR 365/360 calculated interest rate. 10 year fixed APR, 20 year term. Apr adjusts ro 5 year treasury + 3% after 10 years. No prepayment penalty unless refinanced. 800k down required. 1/2% loan fee.
Bank 2 has offered 4.25 APR 365/365 calculated rate. 10 year fixed APR, 20 year term. Apr adjusts to prime + 1/2% at 10 years. No prepayment penalty and can be refinanced without penalty. 20% down required (560k). 1/4% loan fee.
I have approx 1 mil cash in savings I don't need at the moment. Investment portfolio significantly larger, other assets squared away, etc. Income 1.5 mil annually.
Over the next two years I would invest 1.5 million into the building and move my business into it. This 1.5 mil investment into the building would create a very profitable attraction. So the 560k vs 800k down seems a bit more appealing. But I'm considering over the long run tanking 4.25 vs 3.65.
What does bogleheads think?
Which is the better 2 mil bank loan?
Re: Which is the better 2 mil bank loan?
If you have large portfolio (Brokerage) $4-$5 million or higher in this case - May be use your cash, and Margin loan (can be obtained with approx 1% rate — SOFR rate plus some 1% over it).
Since you are using margin for investing purposes- should be deductible too (follow guidelines/rules)
Then start paying off margin fast — your payment will be lot lesser and interest owed will save you a ton. Just saying ..
Since you are using margin for investing purposes- should be deductible too (follow guidelines/rules)
Then start paying off margin fast — your payment will be lot lesser and interest owed will save you a ton. Just saying ..
Re: Which is the better 2 mil bank loan?
I hadn't considered using a margin loan and at this time probably don't have enough time left in the deal to get it all figured out...
Re: Which is the better 2 mil bank loan?
If you intend to ReFi (with or without margin), 2nd loan sounds better.
If you intend to ride the loan (good bit of 10-year fixed term), bank#1 sounds better. ** since you can payoff (not ReFi) without penalty- May be you can pay it off with Margin/cash; then do a good cash-out ReFi at possibly better terms (if Margin/payoff is not your thing..)
If you intend to ride the loan (good bit of 10-year fixed term), bank#1 sounds better. ** since you can payoff (not ReFi) without penalty- May be you can pay it off with Margin/cash; then do a good cash-out ReFi at possibly better terms (if Margin/payoff is not your thing..)
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Re: Which is the better 2 mil bank loan?
Is the property/building the loan collateral or are you required to pledge personal assets / give a personal guarantee?
Better to keep business and personal assets segregated. As you intend to use the building for your business, you may not want to use a margin loan against personal assets for a business holding unless you have to or are using personal assets to guarantee the loan.
Better to keep business and personal assets segregated. As you intend to use the building for your business, you may not want to use a margin loan against personal assets for a business holding unless you have to or are using personal assets to guarantee the loan.
Re: Which is the better 2 mil bank loan?
This. The better loan is the one without a PG. But most of these commercial loans don't require a PG and are underwritten on the building's income potential itself.HomeStretch wrote: ↑Fri Dec 10, 2021 8:05 am Is the property/building the loan collateral or are you required to pledge personal assets / give a personal guarantee?
Better to keep business and personal assets segregated. As you intend to use the building for your business, you may not want to use a margin loan against personal assets for a business holding unless you have to or are using personal assets to guarantee the loan.
Assuming neither require a PG, thenBank 2 pencils out better imo; less capital tied up, refinance opportunities open up, lower upfront fee. The savings of the lower rate on loan 1 mostly wash away for the first few years if you consider probable investment arbitrage + savings from refinance (no fee) + higher upfront fee.
Re: Which is the better 2 mil bank loan?
What's the PPP and does it change based on when you refi (i.e., a refi in year 9 is cheaper than a refi in year 2, etc.)?