Looking for advice on what type of funding to use on my first multi family. I have heard pros and cons for both avenues. Wondering if anyone has an opinion or personal experience they can lend to this topic.
Realtor · Asbury Park, NJ · Member since 2019 · 63 posts · 44 votes
4y
Hey Tim,
I own a 2 family property and was able to refinance with cash out (up to 80%) using a Debt Service Coverage Ratio Loan, this allowed for the property to qualify based on the rents of the property itself. The lender wanted a solid credit score however this is a commercial loan and the property deeded to and titled to the LLC. These loans are available for new purchases as well and range from 4.5-5.5% interest rates, but will not show up on your credit report as they are technically a commercial loan.
The other option is to approach local smaller banks and inquire if they do portfolio loans, I refinanced a commercial loan this year at a 80% cash out with an interest rate of 3.5% This loan does appear on my credit report and may put pressure on your debt to income ratio depending on your income level. These loans are non conforming and are held by the bank and not resold. These also go through traditional underwriting requirements, eg. proof of employment/income etc but offer a 30 year fixed rate, no prepay penalty and in my case an extremely competitive interest rate. You will not generally find these types of loans on bigger named banks as they want to resell these loans on a secondary market.
Lender · Tyngsboro, MA · Member since 2009 · 3k+ posts · 2k+ votes
4y
IMHO (I'm seldom humble, actually, but I'm trying to work on that) your best first multi is owner occupied, in good enough condition that you can get bank financing with very little down. Don't buy something that needs complete rehab, buy something dated but livable safe condition that you can update as you go.
You'll be able to keep an eye on your tenants and property, and you'll learn enough just from this transaction that your head will spin off your shoulders.
There is plenty of time on future projects to get into major rehabs, hard money short term financing, etc.
My best advice: never make friends with your tenants: be friendly and professional, but not friends. I made that mistake several times. I finally learned.
For decades I always bought my primary residence with a rentable unit in it. If I'm a real estate investor, I want my property to produce income to offset some of the costs at least so I live for cheap. Later, when I was more stable and could afford it, I paid cash for where I wanted to live with no tenants.