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).
much bigger down payment for your commercial loan (20-35%) for 5+ unit
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.