Start with 4 units or go bigger

10 Replies

I have a va loan and was set on buying a 4 unit instead of a house . I thought this was my best option to get into real estate but listening to Uncle G , he says 16 units as a min for cover. I feel like that’s for people who have a lot of upfront cash so should I start with the 4plex and house hack . ( mind you I will have a down payment and not be over leveraged) All responses are appreciated
Originally posted by @Sterling Hill :
I have a va loan and was set on buying a 4 unit instead of a house . I thought this was my best option to get into real estate but listening to Uncle G , he says 16 units as a min for cover. I feel like that’s for people who have a lot of upfront cash so should I start with the 4plex and house hack . ( mind you I will have a down payment and not be over leveraged) All responses are appreciated

 You're both right.

16 units is a different animal requiring different financing.  If you have a lot of cash, go that route; but I wouldn't live there.  

4 units is the max for VA and it has to be owner occupied. Your best bet would be to go Fannie Mae with 5% down first (still 4 units must be owner occupied), then use your VA to get 4 more units in a year or so. Then after that, begin accumulating more doors and you're off to the races.

Best of luck

Stephanie

@Sterling Hill to my understanding, properties greater than 4 units are considered commercial and thus need to obtain a commercial loan. If you currently don't own any rental properties, it may be difficult to find a lender willing to offer a commercial loan without the experience. Good luck with whatever route you go!

Do you have enough in reserves to cover a major systems repair on a commercial property? If not, I absolutely wouldn't pursue a deal that large. 

Originally posted by @Sterling Hill :
I have a va loan and was set on buying a 4 unit instead of a house . I thought this was my best option to get into real estate but listening to Uncle G , he says 16 units as a min for cover. I feel like that’s for people who have a lot of upfront cash so should I start with the 4plex and house hack . ( mind you I will have a down payment and not be over leveraged) All responses are appreciated

VA loan allows you the best vehicle for investing while living in one of the units. House hacking as its called in this industry. What others have given you is a sound advise regarding differences with what lending world considers a residential vs a commercial investment.

However, there are couple of other things you need to consider when making investing decision. Are the fourplexes built in the area where you would like to live ? Are they in a safe area? Do you have family? Is the School District important to you? You will find certain regions of the country where the multiplexes are only built in the hood. Some areas of the country do have multiplexes that built in decent B- to B+ neighborhoods. 

Originally posted by @Sterling Hill :
@Courtney M. Yeah I guess I will start with the 4plex and work my way up to the bigger deals . Thank you for your response

 I think if you listened to the podcast I think you listened to, Grant says later in the episode he has massive amounts of money he sets aside for reserves. He mentioned a property needing tens of thousands in repairs and because of those reserves, he didn't "feel" it. I, too, was thinking about going to a six-plex or something like that for my first property but I don't have the funds for repairs and you know Murphy's Law rules in those scenarios. I'll eventually move up to bigger properties but I don't think there's any shame in starting small. Everyone starts somewhere.

Go with what your finances will allow and what you are comfortable with.  You may love it or you may hate it.  If you start with 4 because that's your comfort level that fine.  If it ends up being easy and you can handle more then pursue more units.  Find out if you love it first before getting too deep.  A big part of this will be if you self manage or hire out property management.