What's the difference between buying a 2-4 family and a 5 family?

3 Replies

I stumbled across a 5 unit multi-family and I wanted to know if anyone has experience in making the leap from 2-4 family units to 5+ unit properties. What are the potential problems in tenants, taxes or laws and whatnot? On paper, it is a good deal, but I don't know much about the potential expenses.

Major difference in 5+ MFU is the commercial loan requirement, forced ARM, forced LTV,

reserves and vacancy factors. The final arbitrator of loan qualification is the DSCR(debit service coverage ration).

@Eric Maus

While a 5 unit property is technically commercial, 5-8 unit properties frequently fall into the "no mans land" of mortgage banking:  they are not residential, but they are too small to be of interest to many commercial lending teams (i.e. <2 million).   Here in Canada we have a couple of lenders who are trying to corner this market segment and are underwriting 5-6 unit properties as residential.

If this property is a deal, it might be worth you while to check around with smaller regional/local banks or credit unions in your area to see if any of them might be willing to do the same.