First house purchase with a commercial investment loan mortgage

[justin]

I Haven’t posted here before but I am about to start a real estate corporation with a couple of friends. I am Curious if someone could tell me if I’m paranoid for wanting to take out a fixed rate commercial investment loan at nearly 10.0% -11% instead of taking out an adjustable commercial investment loan at 9 % now that in five years can readjust up to 11.5 %. PS. I have the same mindset as Roache in thinking that the economy is in store for a real huge readjustment.

[leto333]

We would have to know what the full length of the loan would be. There is a breakover point where the fix rate loan will become cheaper than the adjustable if your rate is raised from 9% to 11.5 after 5 years.

Adjustable rate loans are bad if you cannot handle the worst case scenario. People usually get into adjustable rate loans to fully leverage thier money, as with all leverage, this can increase profits, but it also increases risk, and if your new business cannot afford to carry a loan when it's rate has been fully adjusted up, then your business is courting disaster. if you have concrete deals which will take place inside of the fixed portion of the adjustable loan then it is to your advantage to save a point or so on your carry costs. The problem being that many "concrete" deals become very fluid when a party backs out and you carry the property for much longer than anticipated and have to endure the adjustable rate.

Likewise, most partnerships are doomed to failure because partners invariably disagree on items such as this, which spawns other issues, eventually fracturing the partnership when the pressure reaches a high enough level. If you are not comfortable with adjustable rate loans, you should not be party to one.

[justin]

As a note it would be a 10-year loan. I believe are plan is to build up equity in the house over next three years or so and then use the equity as leverage on another house. I am just a poker player so my economic terms might be off and thanks leto for the response

[NoTalent]

Where are you? What is this business going to be doing?