Advice on financing my first multi-family!

11 Replies

Hey BP friends,

I'm looking at buying my first property and was hoping to gain some insight on the best way to finance.

here are the details (I'm trying to be very conservative with the #'s):

4-plex @ 100% occupancy combined rent of 2900

pp: $165000

Vacancy: 8%

Maintenance: 10%

Management: 10%

Taxes: $274

Insurance: 5%

CapEx: 10%

Rehab: 10k. It doesn't need any immediate work but I want to have this budget for cushion or improvements.

I tried to be generous with those numbers to absorb the small things I have not yet found out from the current owner (landscaping, trash, sewage etc.) I plan to be sure of these expenses before signing anything!

If I put down 30% on a 30 yr conventional loan, my cash flow is around 750 and I'm out of pocket about 67k (including the 10k for potential rehab.)

The main question im asking is if there is a creative way I could decrease the out of pocket?

I could also pay all cash and refinance later but am a little unclear about the benefits of doing that (if any). I would be ok to tie that money up for up to a year. 

Any thoughts, questions or suggestions would be greatly appreciated!

Thanks everyone!

@Simon Cox , looks like a good find. Maybe shop around to see if you can get a similar loan for just 20% down? That will save you around $17k up front, but your subsequent cash flow would need to be adjusted downwards a bit. 

Congrats on having such great cash options available. Cheers...

This is a good deal. Typically for a non owner occupied 4 plex the best you are going to do is put down 25%. Conventional mortgages are very cookie cutter with rules coming directly from fannie mae/freddie mac. Call around town you are bound to find someone better than 30%. If you find someone that is willing to do 20% on a property like this send me their name.

Thanks for the input guys! I think I'm willing to put down the 30% because cashflow is a little more important for our current situation. Trying to figure out if buying cash and then doing a refi would be beneficial. Do y'all  have any experience with that?

@Simon Cox , logically, it's six of one, half a dozen of the other. Not sure if it works that way in practice. One of the best ways of ensuring future refi success is to Offer (substantially) less than true market in the first place, which means that subsequent appraisals will allow a full cash-out when refinancing. Another thing that will help is not splurging your cash-flow income on holidays and cars, but re-investing in your next bargain (but I sense that I am preaching to the choir?)...

@Brent Coombs Ya i guess that makes sense. I don't think the purchase price is low enough to justify a full cash and refi option.

Great point about recycling the cashflow as well. 

So I'm thinking there might not be another way to decrease out of pocket except a smaller DP.

Thanks for the advice

Simon,

First trick is increase purchase price by 3% ($5k) and ask for seller credit for $5k which is allowed conventionally... That will save you half your CAPX. If you have less than 5 properties u can go 25% down vs 30%. If the property has enough equity you can refinance after 3 months with lenders like b2rfinance at 75% of fmv to potentially pull out some cash. I wouldn't advise as those loans are higher interest rate ... Wait until you have substantial equity in your building. 

@Simon Cox  You only need to put 25% down for a multi-unit investment property. Find a lender that will get you that loan and give your rental income credit. That will keep the DTI down.

If you still have enough in your pocket to make a full cash offer, then I would offer to pay all cash and try to do the seller credit mentioned above.  This will fast forward some cash back into your pocket early on, then you can refi (likely based on the purchase price if done w/in the next 12mos).  With a few months of the cash coming in, and the refi a few months later you leave yourself in a stronger position.