Buying first multi, need some guidance

12 Replies

Me and a few other investors are going in on a multi family building. There's 4 of us, each bringing about 250K to the deal. So we have a million total.

The plan was to buy 2 4plexes, but I would like to go bigger and just get one building.

My question is this- how do you get out of the "30% down" world and into this "financing is easy for bigger buildings" world.

I'm part owner in a drug/alcohol rehab business and we need to get as many doors as we can. Business is booming and we don't have enough room for all our patients in sober living houses.

Thanks for the tips.

Good day everyone,

I've been "lurking" on Bigger Pockets for some time now.  I'm looking to also move into multi-family residential properties (5-10 units).  I appreciate the question, Thomas, because I've been curious about the same thing. 

I look forward to hearing everyone's answers.

JKK

@Thomas M.

Maybe you could find 2 four-plexes next to each other making financing a little easier or also a larger sized four-plex?

First a question: are you planning to pay $1M for 2 fourplexes?

If so, here is a thought: it seems a little expensive to me... If not, what are your other ideas?

"Lurking" is still legal.  Just don't cross over into "Stalking".  Anyway need a lot more info/specifics.

The idea is to buy 1 4plex in about a month, wait a while and see how it goes, and then another about 4-5 months from now. Each 4plex will cost around $1M from what I can tell.

I've talked to a few more people, and I am seeing that there's really no way to stretch our downpayment money any further than that. 30 to 35% down is the requirement and that's non-negotiable. So 1M in downpayment will only get us 2 buildings. 

When they say "financing is easier on larger buildings" what that means is that they don't look at the borrower credit much, they look at the building. So that doesn't really make it any "easier" unless you are someone with bad credit and a huge downpayment. Buying apt buildings is still way harder than buying SFR because you have to put down 35%, not 20%.

Hey Thomas,

I think I understand a little of your confusion and can help.  When you talk about a 4 plex, to you that is a bigger building (its bigger than a single family house), but to a bank that is still considered residential property and would fall into a loan asset class that is the same as a single family house.  When you hear people talk about not looking at the borrower but looking at the building, they are referring to buying commercial property.  Commercial property is defined as buildings with 5 units or more.  This is likely why you're getting conflicting info.  If you're looking at buying 4 plexes banks will still be looking at your credit and still be requiring traditional and confirming down payments. The good news is you can get better loan terms (30 year loans, lower interest rates, no balloon payments, etc). 

If you're really interested in doing this, I would offer you a few suggestions:

1. Contact a mortgage broker you like who can help you look for commercial property that is bigger with more doors and rooms.  This seems to suit your needs much better.

2. Find a place that needs some work (possibly high vacancy or deferred maintenance issues). Buy it all cash for the million you have. Take out a loan and use that money to improve the property so you can raise rents. After a year or so when it is performing well, you can refinance that loan and take out more of your money.  You can then use this money to pay back some of the original investors or you can all go buy another property and increase your returns.

Let me know if there are any other questions. 

Good luck!

*Conforming down payments

Thomas M. Inbox me. I might be able to help you guys out

I get the idea that a 4plex is still subject to residential type loans, and that commercial lending is a different thing.

I would prefer to be looking at larger buildings with 10+ units, but I don't think the budget will allow that. Form what I understand, you need 30-35% down, if it has 4 units or if it has 40 units. This is the ceiling on the whole thing.

Also, I need it ready to go, no deferred maintenance. I dont mind paying top dollar for that. This is a cash-flow play for my drug rehab business. Any real estate gains are nice but not really the points. I can get each unit cash flowing 40K a month or more because I own a rehab. So I don't really care if the cap rate moves up or down a percent. I don't care if the RE market goes down 3% next year. And I'm not looking to raise rents and flip it later. That is all small time stuff when you can cash flow 40K a month per unit. I just need it READY and I need it VACANT.

Which brings me to my next question....how do ya buy something vacant, or get it vacant fast. Cash for keys is the one idea I'm familiar with.

Originally posted by @Thomas M. :

The idea is to buy 1 4plex in about a month, wait a while and see how it goes, and then another about 4-5 months from now. Each 4plex will cost around $1M from what I can tell.

I've talked to a few more people, and I am seeing that there's really no way to stretch our downpayment money any further than that. 30 to 35% down is the requirement and that's non-negotiable. So 1M in downpayment will only get us 2 buildings. 

When they say "financing is easier on larger buildings" what that means is that they don't look at the borrower credit much, they look at the building. So that doesn't really make it any "easier" unless you are someone with bad credit and a huge downpayment. Buying apt buildings is still way harder than buying SFR because you have to put down 35%, not 20%.

 20-25% Down on a commercial loan is the standard, not 30%.

Originally posted by @Thomas M. :

I get the idea that a 4plex is still subject to residential type loans, and that commercial lending is a different thing.

I would prefer to be looking at larger buildings with 10+ units, but I don't think the budget will allow that. Form what I understand, you need 30-35% down, if it has 4 units or if it has 40 units. This is the ceiling on the whole thing.

Also, I need it ready to go, no deferred maintenance. I dont mind paying top dollar for that. This is a cash-flow play for my drug rehab business. Any real estate gains are nice but not really the points. I can get each unit cash flowing 40K a month or more because I own a rehab. So I don't really care if the cap rate moves up or down a percent. I don't care if the RE market goes down 3% next year. And I'm not looking to raise rents and flip it later. That is all small time stuff when you can cash flow 40K a month per unit. I just need it READY and I need it VACANT.

Which brings me to my next question....how do ya buy something vacant, or get it vacant fast. Cash for keys is the one idea I'm familiar with.

 How is a $1 Million property going to cash flow 40k a month? If you mean 40k a month in gross rents then that isn't cash flow. If you mean 40k in cash flow that means you're expecting 75k+ in monthly gross rents, on a 4 plex?

I own a rehab. I'm gonna use the 4plex to house people who attend our rehab. The cash flow is related to the rehab. The 4plex will house people getting outpatient drug treatment. That's why it flows so much cash.

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