4+ unit properties

Dayton, Ohio
Buying & Selling Real Estate
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4+ unit properties

Manan ShahPro Member
Rental Property Investor · Edgewater, NJ · Member since 2023 · 9 posts · 4 votes

Hello,

I am looking at 2 properties, one 2 unit property that I have put in an offer of about 120k that can generate positive cashflow of $600 per month and another which is a 6 unit property where I have put in an offer of 350k that can generate $2000 cashflow.

I have a bank ready to lend a mortgage at 7% for the 2 unit property. However, the bank indicated they cannot finance the 6-unit property and I would need a commercial loan for it.

Can you please let me know how commercial property mortgages differ for a residential property mortgages and if there would be a substantial difference in rates? Based on the information, would it make sense to move forward with the 2 unit property or a 6 unit one? It seems that the 2 unit generates only $600 monthly cashflow. However, I could add more smaller properties to build the cashflow.

Any guidance would be great.

Thank you.



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Samuel DioufBusiness Member
Real Estate Agent · Columbus & Cleveland, OH · Member since 2023 · 1k+ posts · 1k+ votes
2y

Hey Manan, it depends on your experience and knowledge in the business. The larger multifamily properties can create great cash-flow but you can also make costly mistakes.

As for the difference in loans, I can send you a list of lenders in Ohio. Commercial lenders will be able to answer this question accurately for you. 

[email protected]614-662-1652
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  • Ko KashiwagiPro Member
    Lender · Los Angeles, CA · Member since 2022 · 967 posts · 445 votes
    2y

    Hi Manan,

    Yes, financing for 5+ units would be a different program. Depending on whether you use a "light-doc" program or a "full-doc" program, rates will change. Was the financing you were looking for a conventional or a DSCR? Commercial properties are calculated in a similar way as 1-4 unit DSCR financing.

    310-848-9776
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  • Mihir Bhimaraju
    Investor · Indianapolis, IN · Member since 2016 · 232 posts · 133 votes
    2y

    @Manan - I see you're from Dayton. I've looked at 5+ unit deals in your area (a few years ago) and I've connected with local credit unions that are open to lending on them. If the current bank doesn't lend on it, I'd recommend reaching out to other credit unions in the area. I live in Indy and as an out of state guy, a few local banks were willing to lend to them, so I don't see why they wouldn't help you as well. It might just be a matter of calling several banks until you get a yes. 


    Rates vary for commercial loans, your amortization might also be different - it depends on the bank though, but the appraisal and value of the building depends mostly on the operating income rather than comps. That's the major difference.

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  • Brittany MinocchiBusiness Member
    Lender · Massillon, OH · Member since 2022 · 1k+ posts · 486 votes
    2y

    You'll have higher out of pocket costs for inspections and appraisal on 5+ units, LTV typically doesn't go as high, many lenders require a 70%+ occupancy rate. Rates tend to be higher as well. If you're buying in Dayton, cost of entry is pretty reasonable based on borrowers I've worked with that bought there. If you only move forward with the 2-unit, you should be able to scale relatively quickly. Not sure what sort of financing you're considering (if any), but if I assume 25% down, that's $30k vs $87,500. You can almost get 6 units for the same out of pocket investment buying separately as you can buying the 6 unit, potentially slightly less cash flow with a better rate and less stipulations.

    [email protected]330-354-6590
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  • Samuel DioufBusiness Member
    Real Estate Agent · Columbus & Cleveland, OH · Member since 2023 · 1k+ posts · 1k+ votes
    2y

    Hey Manan, it depends on your experience and knowledge in the business. The larger multifamily properties can create great cash-flow but you can also make costly mistakes.

    As for the difference in loans, I can send you a list of lenders in Ohio. Commercial lenders will be able to answer this question accurately for you. 

    [email protected]614-662-1652
    Reafco - Samuel Diouf4.929 Reviews
    WebsiteView Page
    1Reply
  • Manan ShahPro Member
    OP
    Rental Property Investor · Edgewater, NJ · Member since 2023 · 9 posts · 4 votes
    2y

    Thank you everyone for your guidance.

    If I were to get a higher rate for the bigger property, how easy it it to refinance it down the line and what would it cost to refinance ?


    0Reply
  • Manan ShahPro Member
    OP
    Rental Property Investor · Edgewater, NJ · Member since 2023 · 9 posts · 4 votes
    2y
    Quote from @Brittany Minocchi:

    You'll have higher out of pocket costs for inspections and appraisal on 5+ units, LTV typically doesn't go as high, many lenders require a 70%+ occupancy rate. Rates tend to be higher as well. If you're buying in Dayton, cost of entry is pretty reasonable based on borrowers I've worked with that bought there. If you only move forward with the 2-unit, you should be able to scale relatively quickly. Not sure what sort of financing you're considering (if any), but if I assume 25% down, that's $30k vs $87,500. You can almost get 6 units for the same out of pocket investment buying separately as you can buying the 6 unit, potentially slightly less cash flow with a better rate and less stipulations.

    Hi Brittany, do the lenders require certain occupancy at all times ? What happens when occupancy drops below the agreed threshold?
    0Reply
  • Brittany MinocchiBusiness Member
    Lender · Massillon, OH · Member since 2022 · 1k+ posts · 486 votes
    2y
    Quote from @Manan Shah:
    Quote from @Brittany Minocchi:

    You'll have higher out of pocket costs for inspections and appraisal on 5+ units, LTV typically doesn't go as high, many lenders require a 70%+ occupancy rate. Rates tend to be higher as well. If you're buying in Dayton, cost of entry is pretty reasonable based on borrowers I've worked with that bought there. If you only move forward with the 2-unit, you should be able to scale relatively quickly. Not sure what sort of financing you're considering (if any), but if I assume 25% down, that's $30k vs $87,500. You can almost get 6 units for the same out of pocket investment buying separately as you can buying the 6 unit, potentially slightly less cash flow with a better rate and less stipulations.

    Hi Brittany, do the lenders require certain occupancy at all times ? What happens when occupancy drops below the agreed threshold?

     Hello! The occupancy requirement would be to qualify for the loan initially, not a stipulation for any set period of time.  

    [email protected]330-354-6590
    Brittany Minocchi - Barrett Financial Group, LLC522 Reviews
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