Options in my position

2 Replies

I have been on BP for over a year learning as much as I can and preparing for the road ahead in achieving my goals of early retirement. After researching different strategies, it seems my best option (open for discussion) is getting into multi family properties versus single families (my original goal strategy). Financially, I will be ready by this coming spring to "safely" buy my first investment (I own a SF home currently with only 3K into it). I have been entertaining investement choices for my money (CD's, stocks, etc) but from being on BP I know the most important thing for early retirement is passive income, which MF investing would ideally provide. Researching % return on investement with the choices I mentioned will never get me to my "rat race number" of passive income I need to retire young, at least not anytime soon. I have the following questions regarding my options:

1. Is my only option to put 20% down on a potential MF property if I do not want to use an FHA and live in the property for one year (Primary residence was conventional)?

2. Should I look into commercial properties even though I have no track record (besides my SF)?

3. I believe my best option is to get into a property with as many units as possible to achieve my goals faster, is this a feasible option for me or should I exclusively focus on MFR's (2,3 and 4 unit)?

Any insight into my ideas or questions will be much appreciated. 

Thank You


Here is my opinion on your questions:

1) You can buy a small multifamily (duplex, triplex, quad) and still get FHA financing because it is not considered commercial. Once you get to 5 or more units it is considered commercial so you will need to get commercial financing. Live in one of the units for at least a year and then move out to another one.

2) That is possible because you can hire companies to manage the property. What you end up buying will determine on several factors: if it is 5 or more units you will have to get a commercial loan. You will need to talk to commercial lenders to see what their loan requirements are. Then based on that and your financial situation, look for properties that matches these conditions.

3) Unless you are experienced in larger MF I would stay away from them at first. Build up your portfolio of small MF (less than 5 units) and generate cash flow from them. DON'T rush yourself as it can turn into a very bad financial situation. Also NEVER finance any property over 60% ARV. By doing that will help you to weather any economic storm. Many multimillionairs lost everything in 2008 because they were overleveraged.

In response to your first question, there are a lot of ways to finance a deal. As a newer investor the FHA or traditional 20% down loan would probably be the easiest and cheapest, but you can also look for:

A hard money loan

A private investment from friends/family/local person with excess cash sitting around

Or you can ask the seller to do seller financing. 

Those three are generally more expensive because they have a higher interest rate than a Fannie Mae or Freddie Mac loan, but they can usually give you a higher amount of investment capital as long as you have a good deal. 

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