Financing strategies for properties with 4-20 units

3 Replies

What are you guys using as a financing strategy for multifamily properties just above the conventional mortgage threshold (4-20 units). It seems like properties that are large enough to be above 4 units but small enough to be under 20 units have less demand because of the difficulty in financing them. On the flip side if they are financed it may not be profitable because the property is too small to support the loan terms. Definitely a gray area here.

A few ideas come to mind:

Commercial loans

Portfolio loans

Private loans from local banks.

School me on non conventional financing. What are the typical terms?

Four units is the limit for conventional residential lenders. Anything above four units requires 25% down, shorter loan terms (typically) and more emphasis on the property and the experience of the buyer in terms of real estate investing. I don't think the size of the property has any direct relationship with the profitability. I don't understand that comment. 

Originally posted by @Rob Beland :

Four units is the limit for conventional residential lenders. Anything above four units requires 25% down, shorter loan terms (typically) and more emphasis on the property and the experience of the buyer in terms of real estate investing. I don't think the size of the property has any direct relationship with the profitability. I don't understand that comment. 

 I think the OP was referring to the thought that, once you get farther and farther above 20 units. The down payment amount may start to become smaller % wise because after a certain amount, such as a 10 million dollar complex, its more about the deal then the money that the buyer brings to the table. 

@Isaac Essex

Correct so for example if you had a 5 unit property it would be considered commercial so you would have to get a commercial loan. From my understanding commercial loans have higher interest rates and shorter terms resulting in a higher monthly payment. The monthly payment may be so high that it may be difficult to get cash flow out of the property despite the 5th unit. As opposed to a 4 plex that gets 30 year conventional financing which has lower payments and higher cash flow because of the financing.

I didn't consider that the larger the property the less the owner has a stake in the property but that is a key fact as well. For example if someone owns a 10mm dollar property they are less likely to have a stake in the property.