As the title states, my primary home and 1st ever purchase is now a STR and has done well since January. I bought in 2014 and made many improvements, Since I'm located close to a beach I decided to rent it out for high season (jan-april) and save money by staying with family in the meantime.
With that said, I decided to take a 100k HELOC out on my first residence due to the amount of equity I had and have been looking for a multifamily relentlessly. I stumbled across one that seems to have great numbers and wanted to get some advice.
I have a 800 credit score and will owe 288k on my house with the heloc included. I found a 6 plex I'd like to offer 440,000 on(industrial area with hospital nearby and steady growth). It is fully rented right now with monthly rents totaling 4250. The plan is to put 20% down on the 6 plex utilizing the heloc and then getting a commercial loan for the remainder. Can I use the current signed leases to be accounted for towards the commercial loan? I'm not sure what my odds would be for getting approved on an additional 350,000 loan. I make 75k at my W2 job and am covering the mortgage and then some on my primary but have not met the "2 year" requirement for rental income to count on short term rentals. I also have an additional 12k in future bookings that I can show.
Is there anything I'm not seeing or does anyone reading this have experience with this sort of thing? I really am excited about this 6 plex because it meets all of my criteria and the numbers seem to be pretty good. If done right I should cash flow $220/door. I'd pay off the heloc with any and all extra $ coming in including OT from my W2 job.
@Colton Murray With properties 5 units and up, the commercial lenders will look at the numbers the building produces as well as look at your finances and investment history. I would connect with a few commercial lenders and get a Term Sheet from them to see if they'd be willing to finance your deal with just you, or if youll need a loan Guarantor
@Jake Stuttgen Thank you for your reply. I would possibly need a loan guarantor even if I personally guarantee the loan?
@Colton Murray , I'd love to see the numbers and analysis on this 6-unit. Expected cash flow of $220/unit/month on a property that isn't even hitting the 1% rule sounds highly unlikely. What are your plans to lower expenses and/or raise rents?
- What's the purchase cap rate? How does that compare to the market?.
- You'll likely have to put 25% down. Confirm with your lender.
- They will also want 6 months of reserves
@Jaysen Medhurst thank you for your reply. Expected purchase price of 440,000k. All six units are 2/1 and all are rented with one year leases. 4 rent for 725/month and 2 area rented for 700. My plan is to increase the 700 to 725 next renewal to get everything even across the board.This will bring in an additional 600/year. It's a growing area so I expect to be able to raise rents to 750 the following year. The entire place was remodeled in 2014.Roof, plumbing, electrical, dywall, fans & fixtures, bathrooms, and kitchens. The place even has new AC and ductwork. Recent sales in the are average 110-115 square foot. At these numbers cap rate is 10%. Property taxes are low, maintenance costs are low, and even the insurance is affordable (1600).
I will be using a Heloc that will cover the 25% down and I also have 6 months in reserves. Credit score near 800. Is there anything else I am missing that I could get denied on? I'm completely new to multi-family but have experience with a buy & hold I renovated and turned into a lucrative STR.