Fourplex financing problems

[Jennifer Greuel]

I am really stressed out right now. We have a 4plex under contract and it is a great deal and cashflows well. Our lender had said we could put 20% down but is now saying he needs 25% down (no reason as far as the deal or our credit, I think he is just incompetent). We can't afford 25% down, that would pretty much be every penny we have besides our checking account. Does anyone have a recommendation for a bank that allows 20% down for 30 years and a four plex? Or does anyone have another idea? I don't think we are willing to go the private financing route...

[Charles Carillo]

@Jennifer Greuel

I would get an extension today. I would call different banks and credit unions within 20-30 miles and see what they can offer. 20%-25% is a normal down payment on an investment property.

It worries me a little that an extra 5% clears you out. What happens if some of the mechanicals go out or the roof needs to be repaired or a couple tenants move out? It is very important to have a reserve fund when purchasing investment properties. Remember that smaller properties are the ones that people lose during a contraction, not $1.5mm+ Fannie properties.

[Jennifer Greuel]

@Charles Carillo

The 5% for us is over $10,000. Our income is enough that we could afford the mortgage, etc. without any rental income. And we usually are saving around $1,500 per month so it wouldn't take long to build back up some reserves. Do you think we need more reserves than that?

[Jennifer Greuel]

@Charles Carillo

I've called probably 10+ banks, it sounds like 25% down is normal for a 4plex here, they do 20% down for single families. I am very frustrated with the original lender, who made promises that weren't true

[Charles Carillo]

@Jennifer Greuel

25% is the normal on 2+ unit multifamily investment properties. Make sure in the future that the lender you are using is actually experienced in commercial; most are not. I do not know about your current financial situation or the property but you should have have a liquid cash reserve of 10% of the loan amount + all cap. ex. (renovations). Make sure to save $500 per unit per year for future large expenditures. You might be able to get away with minimal reserves in the beginning but save all cash flow because there are always issues; especially in the beginning. 

[Jennifer Greuel]

@Charles Carillo

Thanks! I wasn't sure what people did for reserves. We have the $500 per unit per year built into our budget for the property, as well as about the same amount for maintenance costs. We were planning to save all the cash flow anyway, we don't need it for day-to-day expenses.

[Harjeet Bhatti]

@Jennifer Greuel You can use 401k for down payment. Ask seller if he/she can contribute in closing cost?