Portfolio loan same as commercial?

Question

I keep seeing posts where sellers are listing their portfolios and (for discussion purposes) am wondering if buying a 2 - 4plex (8 units on separate lots) portfolio is considered a commercial loan or conventional? How would lenders treat these transactions?

This can apply to larger portfolios as well (5x duplexes, 3x triplex, etc). And for these types of transactions how would someone set up the LLCs? One LLC for the entire portfolio or multiple LLCs?

Billy Daniel · Answer

The line is normally drawn at 5 units.  5+ is considered commercial and less than 5 is considered residential.  Of course, this could vary depending on the source of the financing.

As for using LLCs, you will get answers both ways.  Some investors will set up an LLC for each property while others will lump many properties into one LLC.  Your best bet is to seek the advice of an attorney on what best suits your situation.

The bottom line is whatever works for you is the path to take!  You have to engage the professionals though!

Tim Milazzo · Answer

In this scenario, you can use two separate residential mortgages, one for each property, if you buy them in your name, because each property is less than 5 units.

If you want one lender to provide one loan for the 8 units, you would need to use a commercial mortgage to finance it. The same would apply for any combination summing to 5+ units for one loan.