Sell my primary home to buy a 7 unit multi

8 Replies

OK so I have about $400k in equity in my primary residence, I own 3 other investment properties (financed) and buying 4th this week.  I am interested in buying a 7 unit multi but, I don't have the capital to get it unless I sell my primary residence and move into a rental temporarily . I do have a family which will be a pain to move and all but, I am stressing having this equity tied up when I could be using it to grow my portfolio.

Thoughts? Questions? Am I crazy?

Thanks, FYI I am a BP newbie :)

We are doing the same thing.

Sell your primary home, use that cash to invest in real estate. Find a nice rental somewhere that will make it an easy transition.

@Chris Pena

I don't know the specifics of the property but speaking from experience, a Commercial investment under 70 to 100+ units isn't always what it's all cracked up to be. The financing isn't the best (the loan could recast after so many years, and the bank could call the loan in full if you or the property don't qualify), you can get nickel and dimed with common area expenses, and it's not enough scale to have onsite management and maintenance. Also there's higher rates on the loan usually, more down payment required, and commercial insurance required which is more expensive. All of which would cut into your cashflow. And being an owner occupant doesn't give you any additional benefits like it would in residential (because it's over 4 units). 


My question is.....why not get a private 2nd on your primary residence and use that money to acquire the the commercial deal? And if you need to cross-collateralize it with the new building as well, you could. That way you can stay in your house AND buy this new place.

Originally posted by @Dave Van Horn :

@Chris Pena

I don't know the specifics of the property but speaking from experience, a Commercial investment under 70 to 100+ units isn't always what it's all cracked up to be. The financing isn't the best (the loan could recast after so many years, and the bank could call the loan in full if you or the property don't qualify), you can get nickel and dimed with common area expenses, and it's not enough scale to have onsite management and maintenance. Also there's higher rates on the loan usually, more down payment required, and commercial insurance required which is more expensive. All of which would cut into your cashflow. And being an owner occupant doesn't give you any additional benefits like it would in residential (because it's over 4 units). 


My question is.....why not get a private 2nd on your primary residence and use that money to acquire the the commercial deal? And if you need to cross-collateralize it with the new building as well, you could. That way you can stay in your house AND buy this new place.

Good points Dave, I own a 4 family and 2 family now and agree on the added expense. I never considered going private on the primary, honestly not even sure how that works. I do know somewhere who could fund me but I am not sure how those private deals are structured. 

Is there a way to access the equity in your primary residence and purchase 2 4-plexes simultaneously so that you can obtain conventional financing AND get the unit count you are looking for?  Usually you can find someone who is liquidating a portfolio, and often times they own side by side buildings so you could potentially pick up 7-8 units right next to each other.  

Look for portfolio listings, or even multiple units that have multiple buildings.  They may be tied together for financing, but have separate parcel #s.

This will also provide you the best flexibility when it comes time to sell as you can sell them separately if you want.  Most investors (especially the ones starting out) want to use conventional financing, so buying just one of your units (or both simultaneously like you did) will be an option, and open up your Buyer pool.

Originally posted by @Cara Lonsdale :

Is there a way to access the equity in your primary residence and purchase 2 4-plexes simultaneously so that you can obtain conventional financing AND get the unit count you are looking for?  Usually you can find someone who is liquidating a portfolio, and often times they own side by side buildings so you could potentially pick up 7-8 units right next to each other.  

Look for portfolio listings, or even multiple units that have multiple buildings.  They may be tied together for financing, but have separate parcel #s.

This will also provide you the best flexibility when it comes time to sell as you can sell them separately if you want.  Most investors (especially the ones starting out) want to use conventional financing, so buying just one of your units (or both simultaneously like you did) will be an option, and open up your Buyer pool.

Cara sounds like an interesting approach, I was able to secure 2 refi's and a finance deal with a small community bank and do them as commercial loans (through and LLC). I think I would be able to secure financing that way again, my issue right now is the down payment.

Originally posted by @Dave Van Horn :

@Chris Pena

I don't know the specifics of the property but speaking from experience, a Commercial investment under 70 to 100+ units isn't always what it's all cracked up to be. The financing isn't the best (the loan could recast after so many years, and the bank could call the loan in full if you or the property don't qualify), you can get nickel and dimed with common area expenses, and it's not enough scale to have onsite management and maintenance. Also there's higher rates on the loan usually, more down payment required, and commercial insurance required which is more expensive. All of which would cut into your cashflow. And being an owner occupant doesn't give you any additional benefits like it would in residential (because it's over 4 units). 


My question is.....why not get a private 2nd on your primary residence and use that money to acquire the the commercial deal? And if you need to cross-collateralize it with the new building as well, you could. That way you can stay in your house AND buy this new place.

 I don't agree with you here Dave.

1st of all, common area expenses which are part of your "expenses" is already calculated to a certain percentage and set aside and is to be expected. 2nd, I have a great manager managing my 3 buildings which are a mix of 2-4 units. 3rd, down payment is pretty standard on  5+ units. Of course down payment would be less on 100 units, not sure how this really matters. However you are right about owner occupying a unit when it is over 4 units not having any additional benefits. Although you are technically correct about most of your points, I think it's counterintuitive to steer someone away from a  7 unit and compare the benefits to a 100+ unit. Really not comparable and one can become very successful with 5+ units if done right.

@Michael S. You're absolutely right, an investor can definitely become successful with 5+ unit properties. Perhaps I'm leaning too much the other way in my original post but I'm certainly not trying to deter. I'm merely saying there are risks and expenses of smaller multi-unit property to consider. Especially if you have to sell and move out of your primary to do so, these are things to be conscious of.

And I should clarify my point about expenses. When I was talking about common area, I'm comparing them in smaller Multi-units vs. SFR's. So things like communal spaces (i.e. lobbies, hallways, parking lots, stairwells, etc ), commercial trash dumpsters that are required, grounds that need to be maintained (which is usually done by a tenant in SFR), etc. Basically all things you wouldn't necessarily have with most SFR properties. And like I said, there is the cost of commercial insurance. It always varies but SFR insurance is usually about 1/3 of the price.

Now, my main issue with risk is the fact that you have to personally sign on buildings above 4 units. This can be a BIG problem if your loan recasts and you or the property can't qualify again for the mortgage. If this happens, the bank could call the loan. And if you can't find the money and have to go down the foreclosure path, they can go after your personal assets since you personally signed. 1-4 family residential loans usually don't recast and 70 to 100+ unit commercial properties don't require you to personally sign (so in a foreclosure due to recasting in that scenario, they wouldn't be able to go after you personally...though it would still be bad in other ways of course).

I only know this because I had a 6 unit commercial property years ago that I had to turn back into a 3 unit because many of the problems I outlined above. But again, that doesn't mean the deal can't still work. It definitely can! Which is why I suggested the private 2nd option to acquire it.

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