New to Multi-family and need advice
I want to jump into MF but I'm unsure how or where to start. I hear a lot that its easier than single family and I have found properties I'm interested in but I don't know where to begin on financing, or even how much is required down. It is MF at a duplex but not commercial until over 5 units so is the financing different. I'm playing double dutch right now with it and I don't know when or I guess how to jump in.
Hello @Kenn Mccomas,
Whether or not to buy multifamily up to 4 units or a single family is an individual decision. I think you should go through the pre-approval process with a lender, so you know what you are working with. Then use the BP rental property calculator on a few properties in your area to get an idea of what your returns will look like. This can help you narrow down where to focus.
In general, here are some things to know about the difference in lending on SF (single family) versus MF (multifamily).
Single family home: depending on the loan type and property location you have may the following down payment options available to you:
0% VA loan (if you are eligible past military service, or close relation to a family member who served)
0% USDA loan (must be in a rural area, and have stricter debt ratios than other loans)
3% Conventional loan (down payment amount may be higher depending on the debt ratios)
3.5% FHA loan
Multifamily 2 units:
Conventional loans, generally 15% down, unless you qualify for Home Ready 5% down (Fannie Mae product with strict income guidelines. In my market most clients make too much money to use this.
FHA Loans, 3.5% down
Multifamily 3-4 units:
Conventional loans 25% down
FHA Loans 3.5% down payment if the property meets self-sufficiency standards set by the lender. This means that the units you are not occupying must cover the mortgage. In my market, I have never seen a triplex where the property meets the self-sufficiency standard. Occasionally a 4-plex will meet the self-sufficiency standards. What that means is you may have to put more than 3.5% down to acquire the 3-4 unit property.
I think you should start by interviewing lenders and realtors to find a good fit to help you on your journey. The BP "Build Your Team" directory is a great place to start. Look for folks who have experience investing in the way that you would like to, and experience helping clients invest as well. They can guide you and give you great advice.
Best wishes,
Melissa
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Real Estate Agent
Quote from @Kenn Mccomas:
I want to jump into MF but I'm unsure how or where to start. I hear a lot that its easier than single family and I have found properties I'm interested in but I don't know where to begin on financing, or even how much is required down. It is MF at a duplex but not commercial until over 5 units so is the financing different. I'm playing double dutch right now with it and I don't know when or I guess how to jump in.
Hey Kenn, I could help you out to an extent. @Melissa Hartvigsen gave a great breakdown... However, neither of us can tell you how much you can qualify for as that would up to a mortgage broker/bank. I am an investor smaller multi-family units in Fort Lauderdale. There's no reason to rush into a property without doing the property analysis first and knowing how much you qualify for. We can talk about that if you'd like and can discuss the advantages and disadvantages of SFH vs small MF
Quote from @Melissa Hartvigsen:Thank you!
Hello @Kenn Mccomas,
Whether or not to buy multifamily up to 4 units or a single family is an individual decision. I think you should go through the pre-approval process with a lender, so you know what you are working with. Then use the BP rental property calculator on a few properties in your area to get an idea of what your returns will look like. This can help you narrow down where to focus.
In general, here are some things to know about the difference in lending on SF (single family) versus MF (multifamily).
Single family home: depending on the loan type and property location you have may the following down payment options available to you:
0% VA loan (if you are eligible past military service, or close relation to a family member who served)
0% USDA loan (must be in a rural area, and have stricter debt ratios than other loans)
3% Conventional loan (down payment amount may be higher depending on the debt ratios)
3.5% FHA loan
Multifamily 2 units:
Conventional loans, generally 15% down, unless you qualify for Home Ready 5% down (Fannie Mae product with strict income guidelines. In my market most clients make too much money to use this.
FHA Loans, 3.5% down
Multifamily 3-4 units:
Conventional loans 25% down
FHA Loans 3.5% down payment if the property meets self-sufficiency standards set by the lender. This means that the units you are not occupying must cover the mortgage. In my market, I have never seen a triplex where the property meets the self-sufficiency standard. Occasionally a 4-plex will meet the self-sufficiency standards. What that means is you may have to put more than 3.5% down to acquire the 3-4 unit property.
I think you should start by interviewing lenders and realtors to find a good fit to help you on your journey. The BP "Build Your Team" directory is a great place to start. Look for folks who have experience investing in the way that you would like to, and experience helping clients invest as well. They can guide you and give you great advice.
Best wishes,
Melissa
Quote from @Ray Hage:Hey Ray,
Quote from @Kenn Mccomas:
I want to jump into MF but I'm unsure how or where to start. I hear a lot that its easier than single family and I have found properties I'm interested in but I don't know where to begin on financing, or even how much is required down. It is MF at a duplex but not commercial until over 5 units so is the financing different. I'm playing double dutch right now with it and I don't know when or I guess how to jump in.
Hey Kenn, I could help you out to an extent. @Melissa Hartvigsen gave a great breakdown... However, neither of us can tell you how much you can qualify for as that would up to a mortgage broker/bank. I am an investor smaller multi-family units in Fort Lauderdale. There's no reason to rush into a property without doing the property analysis first and knowing how much you qualify for. We can talk about that if you'd like and can discuss the advantages and disadvantages of SFH vs small MF
thank you very much. I would love to have a conversation with you.
Below 5 units will be residential but different lenders will look at different requirements.
Typically to count rental income as income to pay down the mortgage banks will look for some type of real estate experience. The rule of thumb I was given was 2 years of managing rentals.
I'd work with a few lenders to get pre qualified as you'll still have that prequal process in the <5 unit space.
Stick to under 4 and under units for your first deal, you can get preapproved and they are best for newer MF investors. “Commercial” multifamily loans 5+ units can be really complicated.
Get a mentor Kenn.
Quote from @Kenn Mccomas:Hi Kenn, totally normal to feel a bit overwhelmed.
I want to jump into MF but I'm unsure how or where to start. I hear a lot that its easier than single family and I have found properties I'm interested in but I don't know where to begin on financing, or even how much is required down. It is MF at a duplex but not commercial until over 5 units so is the financing different. I'm playing double dutch right now with it and I don't know when or I guess how to jump in.
I encourage you to educate yourself on house hacking... this could be an excellent way for you to begin your investment journey.
Typically, the minimum down payment for an investment property (one that you do not live in) would be 20%. If you were to buy a single-family home that you were going to occupy you can get into that home for as little as 3.5% down. The beauty of house hacking a 2-4 unit property is that you can purchase the property with that 3.5% down payment, as opposed to 20% down, as long as you make it your primary residence for a year. Now you are able to purchase an investment property (and probably live for next to no cost each month with other tenants paying rent) with far less than 20% down.
You are correct, 5+ units then counts as a commercial loan and you would need a minimum of 20-25% down, even if you were to live in one of the units as well.