My wife and I are looking at purchasing a multi family property (5-10 doors) in Kansas City or Tampa; we have been looking at properties in the 1 million dollar range and bring about $200k down to the deal. We are looking to finance the rest and I was wanting to get thoughts and recommendations on what financial institution might be better than others and what "loan requirements" I may want to specify upfront.
Welcome to the Commercial side of real estate! Every multifamily property 5 units and up will need a commercial loan, and there are several differences vs a residential mortgage:
- Larger down-payment required - there are programs that lend up to 80% in multifamily (Fannie Mae and Freddie Mac both do this), but with a loan size of less than $1,000,000, it's uncommon. I'd bet on a 25-30% equity requirement if you're going with a typical community bank program, rather than 20%.
- Amortization on the loan for a new multifamily investor could come back quoted at 20-25 years, though the loan term (when the balloon payment is due) would more likely be 5 or 7 years. There are definitely 10 year terms available from the right banks, but trying to negotiate 10 years with a bank that can only quote 5-7 is fruitless. It's about finding the right lender (and there are many).
- If they like the property's financials, banks will also underwrite your financial strength, and want to see net worth and liquidity that will protect their loan principal. Most community banks will lend full recourse, meaning you're on the hook for the full loan amount if you default (after the bank takes back the property that is).
Let me know if you have any other specific questions, happy to help.
There are many ways to finance this kind of loan. You can do a commercial where you will be in the 30-35 % down. You can do a debt equity loan this is where you give up some equity plus some money down. There are other loans as well.
Freddie Mac will do less than $1 million with an exception and can offer pretty competitive rates. There is a bps adder for under $1 million and they they have a hard floor of $750,000