Commercial lending, investor loans, interest rates, and types of properties

Memphis loan officer Tina Talarico discusses types of loans for commercial lending, investor loans, interest rates, and types of properties. Today we begin a 3-part series where we’ll be discussing types of loans for commercial lending, investor loans, interest rates, and types of properties. It’s gonna be very extensive, so if you’re interested in commercial lending, buying multiple properties or a single property, then this 3 part series will give you some insight as to what to look for.

Find out more about this real estate investing podcast episode at: https://epmrealestate.com/podcast/commercial-lending-investor-loans-interest-rates-types-of-properties

Contact Brett Bernard at (901) 692-7401 OR Tina Talarico at (901) 826-7218

[00:00:00] Brett Bernard:Welcome to behind the curtain podcast. My name is Brett Bernard and today in the studio with me is Tina Talarico, and we’re gonna be talking about types of loans for commercial lending, investor loans, and we’ll do other segments dealing with interest rates, types of properties. It’s gonna be very extensive, so if you’re interested in commercial lending and buying multiple properties or a single property then hopefully today’s segment will give you some insight as to what to look for. So today with me is Tina Talarico she’s with Capital City Mortgage. She’s a certified commercial loan officer. Hey, Tina, welcome. So tell me a little bit about yourself. I know you’ve been in this business a long time. We’ve known each other, I don’t know, few years.

[00:00:37] Tina Talarico: I have been, in the lending business for over 25 years, a little over 25 years. I started out as a residential loan officer years ago and I transitioned over into commercial.

[00:00:49] Brett Bernard: When you say commercial, you’re talking a broad commercial type of lending or are you specific to a certain type of.

[00:00:55] Tina Talarico: We do a broad type of lending in commercial. However, I specialize in residential cuz that’s what I know and that’s what I’ve done for so many years.

[00:01:03] Brett Bernard: So if I have an investor wants to buy a strip mall, y’all provide financing for that. But majority of which you do is single family, multi-family, rental real estate.

[00:01:13] Tina Talarico: Short term and long term. That’s that’s correct yes.

[00:01:14] Brett Bernard: Gotcha. So when it comes down to the lending, what I’m more interested in is the type of loans. I get calls every day from investors, current investors and new investors that have linked up with us that wanna start buying in Memphis and, they always have the same issue. Last year I had a ton of cash buyers, so I didn’t have a need for a lender connection. This year, now the interest rates are up and , you would think that it would be the worst time to buy real estate, I have a lot of investors that are buying, and they’re all putting loans out. Some are paying cash and refining, and we’ll get into that in a minute. So what kind of loans are available? I come to you as a new investor, I’ve never bought a rental property in my life. I have a good credit scoring some money in the bank and I want to buy a rental property tomorrow. What would your suggestion for me be? What would you recommend I do?

[00:02:03] Tina Talarico: Well, I would recommend you start out with one property and take a hold of it and manage it for a little bit. Get your feet wet first. And then from then on, I mean, you can qualify for as many properties as you wanna purchase regardless of your income. Because we don’t require tax returns. Everything we do is based on the performance of the property.

[00:02:25] Brett Bernard: And your credit score, obviously

[00:02:27] Tina Talarico: Credit credit but we do down to 620. So we do offer loans down to 620. Of course the terms are better when you’re over 700, however, we do loans down to 620. In some cases the loan to values a little bit less, uh, maybe 5% less. We offer 80% on single family, one to four units, short term, long term rentals, which would be short term would be like Airbnb. So we do a lot of that and a lot of duplexes, four plexes. When you get to five units that falls into another realm. One to four units. It, it is pretty slam-dunk deal.

[00:03:03] Brett Bernard: So basically the criteria is pretty loose, I would say to get financing, but is there a particular type of property that lenders won’t touch? Is there a cap on the, or a minimum amount that use required if you’re buying just one house versus if you’re buying 10?

[00:03:20] Tina Talarico: We have some options that will lend down to $50,000. Some cut off at a $100,000 and some of the options out there are at $150,000.

[00:03:30] Brett Bernard: We’re working one now and I think you said the minimum is $62,500.

[00:03:33] Tina Talarico: Yes. $62,500 with 20% down takes you down to a $50,000 loan. So 50,000 is the minimum loan, that we can do.

[00:03:42] Brett Bernard: So if I’m buying a package of 10 and they’re all $49,000, I’m kind of SOL.

[00:03:47] Tina Talarico: Yes, pretty much.

[00:03:47] Brett Bernard: Okay. So let’s discuss the types of loans that are available. I know they’re, you know, I had a text from someone yesterday, asked me what I thought about an ARM loan. I’m from the 2008 era where ARM loans were a disaster for a lot of homeowners, because things collapsed and interest rates shot up and, and all of a sudden they couldn’t afford their home and they wouldn’t foreclosure. So I’m a, I’m an anti-ARM loan person, but in the commercial side and in investment side, I tend to think that ARM loans may not be a horrible product because typically you buy a property, you mortgage it, and then every couple years you’re gonna refinance it to maximize your cash flow. Right? You’re always gonna try to bring your costs down to get more cash flow. So, what is an ARM loan? Most people know an ARM loan is, but what’s the term of an ARM loan. In other words, if I got an ARM loan today when could I refinance that ARM?

[00:04:40] Tina Talarico: It depends on if there’s a prepayment penalty that comes with the loan.

[00:04:44] Brett Bernard: But isn’t there a limit to the prepayment penalty as far as time?

[00:04:47] Tina Talarico: There is, they come in, 1, 3, and 5 year terms. So you can buy that prepayment penalty out or negotiate the prepayment penalty.

[00:04:55] Brett Bernard: Is it a percentage of the amount?

[00:04:58] Tina Talarico: It is. Either you can buy it out. In some cases with extra cash or go with a slightly higher rate. So, we’re talking maybe, three 8ths of a point will help buy some of that out. So typically an investor’s not gonna refinance it within the first 12 months. So a one year prepayment penalty’s not so bad, but, um, if you’re planning on doing anything with the property, just make sure you’re not stuck in that prepayment penalty because the way that works is that, if you have a three year prepayment penalty, the first year you pay 3% of the principal balance to be able to pay that loan off early. You can pay up to 20% annually, towards the principal and not be hit with that penalty, however, if you pay more than 20% towards the principal in the first year, then you’re gonna be hit with that 3%. The second year it goes to 2% and the third year it goes to 1%, and then of course after the three year period is up, then you…

[00:05:55] Brett Bernard:So ARM loans don’t have to be dangerous if you’re smart about ’em?

[00:05:58] Tina Talarico: That’s right. And, I’ve always been, against, anti-ARM you know, would talk people through it and say, are you sure? Because it’s a risky loan. However, it’s not risky for investors. It’s risky for homeowners because they don’t manage their money as well.

[00:06:14] Brett Bernard: The asset’s not producing any income.

[00:06:15] Tina Talarico: Right. And they may not be in a position to refinance the loan when it becomes in the adjustable period and ARM loans are 3, 5, 7, and 10 year ARMs so that means they’re fixed during that period and then after that period they become adjustable. Some of them adjust once every six months, some of them adjust once a year.

[00:06:39] Brett Bernard: So if I do a three year ARM. I have an adjustable period, a guaranteed period of six months after that it can be adjusted up?

[00:06:46] Tina Talarico: You have a guaranteed period of a minimum of 3 years or a minimum of 5 years or 7 years or 10 years.

[00:06:53] Brett Bernard: So ARM loans aren’t bad.

[00:06:54] Tina Talarico: So it’s a it’s fixed during that entire period.

[00:06:57] Brett Bernard: So if I refinance at 3 years when my ARM starts to adjust, I’ve got a prepayment penalty, but you weigh that against your additional cash flow you can create by that’s lowering interest rate?

[00:07:07] Tina Talarico: Thant’s true and, and there’s another plus to that as well. The fully amortized loans are always good because you know, 30 year amortized loan, it’s gonna let you see that cash flow pretty good. However, after that adjustable period, whatever term is left on the loan, for instance, you have a 5 year ARM, when the 5 years is up, it becomes adjustable and, if the market is doing better than what your rate is, it may not adjust at all..

[00:07:33] Brett Bernard: Yeah. ARM loans got a bad name because when the economy started collapsing, the housing market collapsing, interest rates started shooting up, and now all of a sudden a homeowner who had a note of $1,800 a month, it was now 2600 2700 and they couldn’t pay it. And that’s what Glen and I did for a long time over at the law firm. We assisted homeowners in fighting the banks to try to get those, and, listen, I know a couple mortgage brokers who hopefully are in jail, who made a lot of money selling ARM loans, but they sold them under a false pretense. The angle was, oh yeah, do an ARM loan because they made more money on it, but oh yeah, 3 years from now I’ll just refinance you into a permanent loan, so take advantage of this ARM loan. Knowing that it was very slim chance they were gonna be able to find ’em a better product when everything started adjusting upward.

[00:08:19] Tina Talarico: That’s true, and you never know if their income is gonna be the same and this is a homeowner that I’m referring to. Their income may have changed. They may not be able to debt ratio. The market might have turned their house value might not be there. Their multiple reasons why a homeowner. I’m really against a homeowner doing an ARM loan unless they’re very financially savvy and they have plenty of cash reserves. However, I’m seeing a lot of investors right now going with the ARM loans because typically, historically, an investor is gonna keep a loan maybe 5 or 10 years, and they’ll flip it and sell it and get their investment out of it, once that equity grows and turn around, and I’m seeing ’em upgrade little bit more expensive properties. So they’ll sell those, beginner homes that they start with, they’ll draw the cash out of those, sell ’em and take that money and invest it in more homes of another level. I now am a, a fan when it comes to investors on ARM loans. A typical investor does not keep a loan for 30 years.

[00:09:20] Brett Bernard: Sure. No. Well, let me ask you this. We talked about the negatives of ARM loans. What are the. What would you classify as advantages of doing an ARM loan?

[00:09:29] Tina Talarico: The advantages of doing an ARM loan? We offer interest only. So if you’re looking to really turn some cash and see that cash flow coming in pretty good. If you do an interest only, you’re not paying towards the principal, do interest only loan and do an ARM, this is really a win-win situation.

[00:09:46] Brett Bernard: And you can pay principal toward it if you want?

[00:09:48] Tina Talarico: Yes, you can. Up to 20% annually.

[00:09:52] Brett Bernard: But you’re required only to pay the interest on the loan itself.

[00:09:53] Tina Talarico: That’s correct. So, so you have a lower payment, and not only that, you just see more cash flow and so that I’m seeing a lot of that right now, they’re taking that money, there, that they’re saving on those properties, paying interest only, and they’re taking that cash flow and they’re fixing other properties or taking that and putting it back and purchasing more.

[00:10:12] Brett Bernard: Right. Okay. You’ve enlightened me on ARM loans. Like I said, I just got a text from one of my investors yesterday. Somebody you’re actually working with was asking me about an arm loan. I’m like, well, you know, I’m not a big fan, but you know, if you look at it from a cash flow perspective, which leads me into my next, discussion. I get investors a lot, that call me and for the last several years, they’re always focused on market value. Now, market value matters if you’re getting a mortgage because you gotta get it appraised, but at the end of the day, all that should matter to any investors, if the house is worth $110k and you pay $115 for it, but it’s producing $1,500 a month in income, who cares about the market value? Because that asset is going to continue to grow. Comps are gonna grow, values and rent comps are also gonna grow. So in that situation, I would tell that investor, if, if they can get a, a loan based on a hundred, $110,000 value, I would tell ’em to pay the extra $5,000 out of pocket because the ROI is so much better off than what you normally can get in Memphis. The Memphis market’s not slowing down, it’s slowed down some the occupant has, but the investment side is still booming.

[00:11:15] Tina Talarico: It definitely is booming. I had a an investor who sold his properties and other cities. He had a 1031 and he said, Hey, I have six months to spend this money and I need to kind of roll with it. I need to buy five properties quick and in a hurry. And I asked him what brought him to Memphis? He’s from Florida. I asked him what brought him to the Memphis area, had a guy in New York, did the same thing. I asked him, you know, why Memphis? And they said that they bought a couple of properties in Memphis or had friends that bought properties in Memphis and they found that the real estate is, is very inexpensive here. Property taxes are reasonable and they see a bigger cash flow.

[00:11:58] Brett Bernard: You know why Memphis, Memphis is a hot market for a lot of reasons. I tell investors. The main reason for me is because 49% of the people inside city limits rent.

[00:12:10] Tina Talarico: That is so true.

[00:12:11] Brett Bernard: It’s a fact. So when you have a huge renter pool, guess what? Your house doesn’t stay empty long. Well, the faster you can rent a house at top cash flow, cuz cuz renters are competing for properties you’re getting top rent. Well, when you get top rents, guess what happens? That then begins to slowly push up the values. So there’s always a positive side to the Memphis market. In 2008, the investment market in Memphis saw a 18% drop when the rest of the country was 30, 40, 50, 60% and I attribute that to the fact we have a large rent pool. So the investment property stayed pretty firm. I mean they, they lost value. But in let’s see, that was 2008 by 2010, we were already back where we originally started. By 2012 we exceeded it by the 18 or 20% we lost. So whoever bought during that time would see a 40 or 50% increase in value ,rents and everything else. I don’t know why so many people rent. I just know that Memphis is a distribution city. You got FedEx, Nike, Amazon. I mean, the list is long. Worldwide company. Every worldwide company’s probably got a distribution facility here. So a lot of those folks work in distribution, they drive forklift trucks, load boxes, working lower management, work on the line somewhere, or, you know, they’re in the service industry. They live paycheck to paycheck. So yeah, there may be a month where the car breaks down and your rent comes on the 15th instead of the first or the fifth. But the asset itself overall is outperforming pretty much any other market in the country.

[00:13:33] Tina Talarico: And the reason that a lot of those industry workers or other job fields, the reason that they rent is that they are not able to save money for down payment. Sellers are not out there paying closing costs anymore. So they need more out of pocket to purchase now. And, uh, a lot of them have good credit, but they can’t debt ratio cuz they buy the big fancy car and there’s a couple of reasons why that they actually can’t buy. Then some of them don’t wanna buy because they don’t want the responsibility of the maintenance and they don’t wanna be tied down. Another thing that I’ve seen too about investment properties in the Memphis area is they don’t sit vacant for very long at all.

[00:14:15] Brett Bernard: There was actually a news article, I forgot what paper it was in, about a rental housing shortage in Memphis. I know the management company here was getting people throwing applications on homes before they even see ’em because it’s so competitive. They were just throwing application, after application, after them they were spending 3, 4, 5, $600 on application fees, just trying to get a house because it was so competitive. Now it’s slowed down a little bit, and I believe that’s because tenants are kind of the wait and watch like to them. They watch the news every evening and to them, the world’s coming to an end, it’s falling apart. So they’re not picking up stakes and moving anywhere, which is good for investors cuz you’re getting tenants that are staying longer, but all these tenants stay at their job. You know, when the economy crashes, guess what? FedEx, Nike, Amazon. They all still have to keep shipping. They all still have to keep working, which means their employees still have to go to work every day and they have a job. That is way different than some of these other markets where you have so many self-employed people and their livelihoods are so volatile, dependent on the, the market and what’s going on in the economy. FedEx is never gonna stop shipping. Nike’s never gonna stop selling shoes. Amazon’s never gonna stop shipping products. And that those two big facilities out there in Raleigh, you know, people go to work, they went to work during COVID. They went to now the interest rates are high. They go to work cuz the gas prices are high. Inflation’s up. Economy’s not doing well, but they’re still having to go to work every day. So the good news is, is you get tenants that can pay their rent. We do have a number of section eight type tenants in certain areas. Low income, but the majority I would say are the tenants that are in my investor’s homes work at FedEx work at Nike work at Amazon work at St. Jude, or in the service industry somewhere. If you’re listening in a good place to look at is Memphis. My name is Brett Bernard I’m with EPM Real Estate, I am an investment agent. I deal with investors around the world, across the country, helping them buy and sell portfolios here in the Memphis market. I can be reached directly at (901) 692-7401. And then with me today is my guest is Tina Talarico with Capital City Mortgage. She is a certified loan officer and her specialty is in residential, but she also does commercial. So Tina give you your information out so if someone has a question they can call you .

[00:16:24] Tina Talarico: My telephone number is (901) 826-7218 and you could reach me at that number anytime.

[00:16:31] Brett Bernard: All right. So, I would encourage you to reach out to Tina. I’ve sent a number of investors to her recently, on package deals and onesie twosies, and she’s done a phenomenal job of finding the right product for them. And I will say something about Tina versus most loan officers if she doesn’t think it’s a good deal for you, she’s gonna tell you, so she’ll, she’ll be honest with you and say, look true story. I have one investor I sent to you. You told him flat out you might be better off going to a local bank. He did. He went to his credit union and got a better deal and got his loan done. We’re about to close that one. So Tina will be direct and honest with you and I appreciate that about her. So, all right, well, we’re gonna wrap this segment up. So if you’re interested in talking about it, (901) 692-7401, gimme a call or find us online at epmrealestate.com. If you go to that website and go to second picture, which is the best looking guy in the group. That’s me. My my cell number’s on there is a little bio about me. Tina, why don’t you give out your website as.

[00:17:28] Tina Talarico: It’s www.capitalcitymtg.com.

[00:17:29] Brett Bernard: And if we can get you lined up and decide you’re buying, I’ll send you to Tina and she can get your loans set up for you and give you your options. Appreciate you listening today. You’ll have a great day