4 Unit vs 6 Unit Situation... Commercial Financing

[Ryan Bakerian]

Hi everyone. I have a client currently looking at starting his investment portfolio and he ran into a couple off market deals. 

He is looking at a 4 Unit for $360K that takes in roughly $4400 a month with taxes around $7K a year. Good building, in a bit of a rural area however. Rents need increasing and are roughly 15% below average. 

The other is a nice low maintenance brick 6 unit that takes in $5800 (all 1 bedrooms) in a upcoming area with good employment. Rents also roughly 15% below current rates. Rare property in this area. Large lot, lots of parking. Detached garage. Near new pharma company. 

Both units are able to be purchased under value by 50-75K off market. 

He is noticing even on smaller deal lending the commercial rate is significantly higher and more red tape vs. the four unit property. (Commercial rate being a 20% down 10 year term, 25 year amort. with a 5 year reset). The four unit is more fundable obviously. He is debating using HELOC to buy the 4 unit (25% down) and cash funds of 20% down to buy the 6 unit.

Are there any better lenders that can offer better than the above? The above is a local bank and he is an instate buyer but may only go after one property. I'm thinking the 6 unit is a better long term buy and hold as its a rare apartment zoned property in a hot area however there is a lot more initial red tape and closing costs. 

Thank you in advance for the assistance. 

[Robin Simon]

Quote from @Ryan Bakerian:

Hi everyone. I have a client currently looking at starting his investment portfolio and he ran into a couple off market deals. 

He is looking at a 4 Unit for $360K that takes in roughly $4400 a month with taxes around $7K a year. Good building, in a bit of a rural area however. Rents need increasing and are roughly 15% below average. 

The other is a nice low maintenance brick 6 unit that takes in $5800 (all 1 bedrooms) in a upcoming area with good employment. Rents also roughly 15% below current rates. Rare property in this area. Large lot, lots of parking. Detached garage. Near new pharma company. 

Both units are able to be purchased under value by 50-75K off market. 

He is noticing even on smaller deal lending the commercial rate is significantly higher and more red tape vs. the four unit property. (Commercial rate being a 20% down 10 year term, 25 year amort. with a 5 year reset). The four unit is more fundable obviously. He is debating using HELOC to buy the 4 unit (25% down) and cash funds of 20% down to buy the 6 unit.

Are there any better lenders that can offer better than the above? The above is a local bank and he is an instate buyer but may only go after one property. I'm thinking the 6 unit is a better long term buy and hold as its a rare apartment zoned property in a hot area however there is a lot more initial red tape and closing costs. 

Thank you in advance for the assistance. 

Check out this BP Article on Multifamily DSCR Loans for 5-10 Unit properties

https://www.biggerpockets.com/blog/multifamily-dscr-loans

Rates are a bit high BUT - are typically 30-year fixed fully amortizing (30-yr schedule) or even Interest-Only for the first 10 years, so even a higher rate might mean an equivalent or lower monthly payment with those terms

Example from the article: