Financing a 6 unit apartment complex

20 Replies

Hello all, so this is my first post here. My realtor came across a 6 unit complex coming on market soon. The number check out and all looks good. Only issue is financing. They are asking 475k and I don't have anyone who is willing to go in on 20% with me. Now my realtor suggested if I could find someone to move into the property it would only be 3% down. If I could have my wife "move into it" would that work? Then transfer the property into my LLC? "I'm still in the mix of getting it set up" that leads me to my next question reading the how to invest in real estate. It says that you can't get a residential loan for units over 4. If my wife were to "move in" would that be an exception. What are the risks in doing that? Thanks in advance!

@Matthew Lynch

For FHA loans; the property must be 1-4 units and the home must be the borrower's primary residence. It seems this property and your situation will not fit this. You could speak to local banks and credit unions to see if they will do a lower down payment but 20%-25% down is pretty standard on commercial multifamily.

5+ Unit is considered as commercial property and should get commercial loans. Commercial loans require 20-25% down payment. What your realtor mentioned should be FHA loan. FHA loan for multifamily is up to 4 units.

Originally posted by @Matthew Lynch :

So if we were to find a 4 unit or lower would it be possible to have my wife “move in” to avoid paying the 20%? Just curious because there are a couple 4 units available in my area. 

Don't out that in "quotes", like she wouldn't really live there. That would be mortgage fraud.  

@Matthew Lynch

Hey, most people do not know this but for FHA loans you CAN purchase a 5+ unit. You just have to decommission the units and bring it down to "4". In your case, you would have to decommission 2 units. You wouldn't be able to rent out the 2 if the 6 units until you refinance out of the FHA loan. Talk to a lender on their requirements, but most of them require either to remove the kitchen appliances and/or knock down a wall so that the two units are "duplexed" or combined with another unit. Totaling it up to 4 units.

EX) If the six unit building has 1 bed 1 bath each, you'll combine them to have two units that are 2 bed 2 bath and two units stay 1 bed 1 bath.... And there you go, you have a 4 unit building that is FHA approved.

For your wife to move in would require that she be on the loan-her name- and on the deed.  

Also, she would need to rest her head there each night for a year before she could be released from that clause in the loan agreements.  Depending on the area, someone else who may have wanted to purchase the property could turn you in for loan fraud if you do buy as owner occupied and it is not.

Also you will NOT be able to rent that unit for a year--no income showing for it as it is owner occupied, so take those numbers into consideration.

@Matthew Lynch as far as transferring it to your LLC you would need to speak to the loan officer. In some cases transferring the property out of your name into an LLC can trigger a clause in the mortgage agreement and cause the loan to be called to be paid in full. Other option is refinance out of it with your LLC as the purchaser on the new loan.

@Matthew Lynch

If the seller is willing to hold a portion of the note (secondary to any bank) and the numbers still make sense with higher debt service then you may find a small bank or credit Union that looks at that seller hold as your equity portion (that is more common in business acquisition, but you may find a lender willing to do the same for commercial real estate).

As for your wife “moving in” - she would have to be the one on the deed and loan. She would also be signing documents that indicate she will live there for at least one year. If you are not also planning to move in the bank may question your honesty right up front. If she doesn’t actually intend to move in then you are having her commit mortgage fraud.

If the numbers are that good I would explore every Avenue I could to come up with the down payment.

Hi Matthew. This would be a commercial loan, so no FHA programs. if the property were larger / more expensive, you might qualify for agency debt from Fannie Mae or Freddie Mac loan programs. This deal is likely too small, so you'll need to go with more traditional bank financing. A local credit union might be one of your best bets. I'd call a few of them, and also connect with a commercial mortgage broker in your area. Don't bother with most residential folks (people who do loans on 1 to 4 unit stuff) - you want someone who specializes in commercial.

Have you looked at a commercial loan. Perhaps this is a deal you could partner with someone? What are is the complex in and what kind of rents does it promise? Is it already rented out and is there an opportunity to upgrade and get higher rents?

All sorts of questions. The one answer that should reign supreme is don't be so creative that it looks like mortgage fraud. FHA doesn't sound like the right deal. You'd do better with partners and a commercial loan.

Thanks everyone for their inputs it really helped. As for the property I know now that I would need a commercial loan. The comps look well but being so new to real estate investing I don’t have enough capital just yet to be partner with someone on this particular deal.

Originally posted by @Matthew Lynch :

Thanks everyone for their inputs it really helped. As for the property I know now that I would need a commercial loan. The comps look well but being so new to real estate investing I don’t have enough capital just yet to be partner with someone on this particular deal.

Good decision. Keep going and you'll get there eventually.