Kansas City Multifamily Financing

[Carrie Hallensleben]

Currently my husband and I own three rental properties along with our primary residence. We are interested in moving toward small multifamily i.e. 4 to 6-plex to start. My question involves financing. We have a home that has 10 years left on the loan and we owe about 90K. We have a HELOC we can use for 80K. However, if we are to access that HELOC, the lenders have told us that is using financed money for the down payment. Would it be smarter to refinance the home and pull about 100K in equity to use for investing? Another question...if we refinance but it isn't our primary residence anymore, will the terms be worse than refinancing an owner occupied property. Any feedback about the pros and cons of this would be very helpful as we try to move forward in obtaining a multifamily investment.

[Jon Holdman]

Having the property in an LLC, with ONLY the LLC as guarantor on the loan with no personal responsibility would avoid the lender coming after you. Trouble is, that's almost certainly not going to happen. Even if the property is in an LLC and the financing is in the LLC's name, the principals of the LLC almost always have to give personal guarantees for the loan. A new LLC has no financial history, and so won't qualify for a loan on its own.

It is possible to get a true non-recourse business loan. This is required if an IRA buys a property with financing. The down payments on those are at least 35%.

As @Dave Van Horn points out, if you stay with 1-4 unit properties you can get conventional, 30 year fixed rate financing. That gives you the best shot at cash flow.  If you go over four units, you're in commercial financing territory and there are no 30 year fixed loans in that space.  ARMs, balloons and short amortization periods are the norm.  That's going to be the case for a fully non-recourse loan, too.