Larger Multifamily financing risk vs smaller multis 2-4units
I am new to real estate investment. I am located in Connecticut. The markets I am interested in are New Haven, East Haven, Wethersfield, Hartford, West Hartford, Middletown, Glastonbury, Cromwell, Rocky Hill areas.
I have been indecisive between smaller 3-4 unit houses and 20 unit apartments.
I need some advice.
I have ~200K to invest. I would like to go in with significant leverage and target 800K-1M worth of properties.
I am looking around 9-12CAP deals in B+, B- or C+ properties.
I am trying to decide between buying 5 separate 3-4 unit properties or a single 15-20 unit property.
I plan on holding the properties as long as they remain positive cash flow.
Financing seems to be more risky with 5+ properties since in 5 or 10 years, the loan is called back and you need to refinance at the market rate.
Lets say I bought a $1M property with 20% down, if the interest rates become 8-9% in 5 years, the property price would drop 25% yet I would still owe ~$700K. The property will appraise at 750K.
I would not be able to get financing without putting down more money out of pocket. Even if I get the financing, I would be getting it from 8-9% rate. The property may become cash flow negative because of the high mortgage payments.
On the other hand, 3-4 unit house, I can finance it for 30yr fixed rate. Even if the market fluctuates, I am safe with my original financing terms. I can exit or refinance when it is favorable during the loan term. Also, the residential loan conditions are more favorable. Lower rate and 30 yr amortization instead of 25 yr.
What am I missing about financing? If everyone thought like me the smaller multis would be on demand and larger properties would be dirt cheap.
Also, being new and not having a network, I am less likely to get the premium properties for larger multifamily since the commercial brokers float the good deals to their long term clients first. I would probably end up with scraps from loopnet. The smaller multi is more open to public through mls.
Any feedback would be appreciated.