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Ryan Smith
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Buying a Small Multifamily

Ryan Smith
Posted Nov 17 2022, 16:16

Noob question here - looking at buying a small multifamily (Think Triplex or Duplex).

I currently make low 6 figure income ($100-200k) with great credit score (750+). But minimal savings as I am pretty recently out of college. I have professional experience in investing but on the commercial side. 

I would want to buy something stable that would be have immediate cashflow to cover the mortgage. Would look for value add opportunities. 

How do I approach understanding what kind of purchase price I would be able to cover with debt? I understand it's pretty straightforward with a SFH but with a multi i'm not going to be able to cover mortgage with my 9-5 income alone. Can't imagine many starter investors could unless you're making crazy money. What would be some good starting advice on approaching lenders to see how much I could get approved for? Will having good income and credit store count for something or do I need to focus on saving? (i'm in a very expensive location so it's tough).

I understand with and FHA loan I can buy a 4plex or something similar and occupy one of the units for low downpayment then refi after I get enough cashflow to cover 20%.

Mabye it would be a better Idea to buy a SFH first, but I'm nervous about buying anything too far from where i'm located. Seems like a small multifamily would be a better investment.

Appreciate any advice from anyone who bootstrapped it when getting started. Cheers!

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Patrick Drury
  • Real Estate Agent
  • Columbus, OH & Cleveland OH
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Patrick Drury
  • Real Estate Agent
  • Columbus, OH & Cleveland OH
Replied Nov 17 2022, 17:52

@Ryan Smith
The only way to know what you are lendable up to is to just reach out and talk to a lender. With FHA, they would count the rental income towards your income. Keep in mind that FHA loans are subject to the sustainability test. If you can do the FHA 4-unit do it. The more units, the better!

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Mohammed Rahman
  • Real Estate Broker
  • New York, NY
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Mohammed Rahman
  • Real Estate Broker
  • New York, NY
Replied Nov 21 2022, 12:39

Hey @Ryan Smith - congrats on taking the first step of putting yourself out there man! I'm a realtor & investor, and have been in your shoes. I used to work in the corporate world (software sales) and was making similar to what you were. 

The good think about investing in real estate for people like us is that there are so many avenues to explore, as I'm sure you know with your CRE experience. The downside is the same as the upside, there's a lot of options and sometimes it's hard to figure out what's right or wrong. In reality, there is no right or wrong. It depends on what's right for you. I advise all my clients the same, research what you want your investment goals to be and then work from there. There's no point investing in a BRRRR if you know you only want super passive income (which in turn would make sense for you to invest in a turnkey rental).

There's a ton more I could say, but would be easier to hop on a quick call instead. Feel free to DM me and we can take it from there, good luck! 

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Jonathan Taylor
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  • Los Angeles, CA
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Jonathan Taylor
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  • Lender
  • Los Angeles, CA
Replied Nov 21 2022, 15:28

@Ryan Smith considering you are looking for a property that basically debt covers, you can run numbers under a DSCR loan which does not take into account your personal income.

To take a step back, DSCR loan, aka lite doc or business purpose loans, uses the rents you receive on the property and divided by the new loan PITI to receive a ratio. Simple math would be a PITI of 1,000 and rents of 1500. That would be a debt service cover ratio of 1.5. Basically, this property cash flows. FICO, experience, and LTV are also factors but this is the basis of the loan. No need for tax returns, verification of employment, or income. I have been through this loan as an investor myself and originate these loans all the time.

DM with questions as Im happy to help.

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River Sava#2 New Member Introductions Contributor
  • Lender
  • Charlotte, NC
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River Sava#2 New Member Introductions Contributor
  • Lender
  • Charlotte, NC
Replied Nov 22 2022, 04:52

Hi Ryan - I would suggest looking into a DSCR loan. I would love to discuss this further with you and see if the numbers would be right for you!