A quick guide to commercial lending for real estate investors

Most investors are familiar with using conventional mortgages on residential property, but how do loans work in the commercial space, or after you have hit your 10 conventual loan limit? In today’s episode, Emil and Michael walk through what you need to know about using a commercial mortgage. --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions, and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: What's going on everyone? Welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum, and today I'm joined by my co-host…   Emil: Emil Shour.   Michael: And today we're gonna be talking about a topic that I've been getting a lot of questions about inside the Roofstock Academy and that's commercial mortgages and what do I do with I've hit my 10 loan limit on the conventional side. So let's get into it.   Emil, what's going on, my man?   Emil: Hey, dude, how you doing?   Michael: Hanging in there, traveling on the road. Hanging out, no complaints how you doing?   Emil: As always…I'm good, I'm good man. Just ready to talk real estate and loans, conventional commercial. I mean, this is it is an interesting one, actually. Because I think when you're new, and you hear about like the 10 loan limit, you're like, what do I do after that? I remember being like, what am I going to do after that and then you learn a little bit more about commercial, you're like, oh, this isn't that complicated and it's really not that much more expensive from an interest rate perspective.   Michael: Yeah, yeah. It's so funny, I hear the same thing all the time from folks like, oh, what I do, like, I can't get started investing in real estate, because what if I hit my 10 limit, like you have a little worry about that after you have 10 properties, like, that's a great problem to have and by that point, most people figure out an alternative source of financing anyhow, so. So I just, you know, let's start by talking about what a conventional mortgage is kind of how it works, what the mechanics are of it, and then we can transition to talking about commercial mortgage. So Emil give me the breakdown of what a conventional mortgage looks like, and sounds like and what some of the terms are.     Emil: Sure and please correct me if I incorrectly say any of this. So conventional mortgages, you know, your typical bank will loan these out, they are usually government backed, they come in 30 or 15 year amortization, meaning that is the life of the loan and the repayment period. What else am I forgetting here? You pay your I mean, do we want to get into like the nitty gritty like, most of your interest is paid up front, and then more, your principal is paid on the back end. So it's not like a linear payment through those 30 or 15 years, but…   Michael: Not yet, I think that's perfect, man. So most people, when they go to their bank, they're gonna see their 15 year fixed, 30 year fixed, they also have ARMs, a lot of banks will offer ARMs, which just as an acronym for adjustable rate mortgage and you'll usually see that as a five one or a seven, one or a 10 one and that first number is just how long the interest rate is fixed for. So in a five, one situation, it's fixed for five years, and then it adjusts once per year, every year, is what that five one means and that amortization can either be a 15 year or a 30 year, I believe, but check with your lender see what options they have and just like Emil mentioned, the, it's like how many pieces the loan is cut into is the amortization, so 15 years, you're gonna pay 15 years by 12 months, or 30 years gonna be 30 yea