Suggestions for Financing Small Multifamily w/ Non-occupancy Loan

4 Replies

Hello!

My original plan was to buy a small multifamily (2-4 units) in my area and househack. House hacking (self-occupancy) would of course allow me to go with a non-conventional, non-commercial mortgage like Homestyle have a down payment of less than 20%.

Unfortunately, the timing might never be right (I'm renting, future tenants' leases might take more than 2 months to expire). I'm sitting in a place where a very good deal might pop up, and a conventional, non-occupancy loan would require me to put a down payment greater than 20-25%.

What can I do to reduce the down payment of a non-occupancy loan? Credit union? Hard money?

Thank you in advance for your suggestions, I greatly appreciate them!

@Isaac Galli have you shopped around at local banks & credit unions? Is it a property that is in great condition, or could you add value to up the ARV?

Outside of the usual options like seller financing and partnerships, the other option is to use a personal loan or line of credit to pay for some of the down payment and finance the rest (saw one from SoFi recently that wasn’t bad). However, this would only work in a property where you could either buy under market value (80% of value), a property that you could force appreciation through minor rehab, or a combination of both.

You’d only want to do that if you were positive on your numbers and could refinance to pull most of your money back out.

As a brief example I’m working through now:

4 plex, $200k value. Under contract for $160k

$32k down + closing costs + minimal update = $40k cash paid, I pay $30k with a personal loan/LOC @12% (and have a $128k Mortgage)

I cash out refi after 6 months at 80% LTV ($160k - $128k Mortgage - $30k loan - $1800 interest), and i now only have $10k + refi closing costs left in the deal

Originally posted by @Isaac Galli:

Hello!

My original plan was to buy a small multifamily (2-4 units) in my area and househack. House hacking (self-occupancy) would of course allow me to go with a non-conventional, non-commercial mortgage like Homestyle have a down payment of less than 20%.

Unfortunately, the timing might never be right (I'm renting, future tenants' leases might take more than 2 months to expire). I'm sitting in a place where a very good deal might pop up, and a conventional, non-occupancy loan would require me to put a down payment greater than 20-25%.

What can I do to reduce the down payment of a non-occupancy loan? Credit union? Hard money?

Thank you in advance for your suggestions, I greatly appreciate them!

Isaac

You need to have some patience.  Here's a standard house hacking plan.

  • Get your financing in place for a conventional loan that allows for up to 4 units and then find the property and go live in it.  
  • Then, once the occupancy requirement is satisfied, do it again with FHA and go live in it.
  • Then, after you've been stock piling cash because other people have been paying your mortgage, start worrying about exhausting your conventional financing options because the money is cheaper and the terms are better than anything any portfolio lender can offer.

If you get to the point where conventional financing doesn't work, then go the portfolio route.  Portfolio financing is great, but it's not cheap and will eat into your margins.  Take the cheap money while you can get it until you can't get any more.

Stephanie

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I believe that if you find a deal that you would like to buy and your financing is inline you can make it contingent on one of the units becoming open.  I am pretty sure it will work out if you tell the seller that you need one unit vacant before the sale also.  They will have to give their renter a notice to quit. I think you are worrying about something that is not a big issue. 

Make sure your numbers make sense.

Good Luck!

Thank you all for the advice! 

@Patrick Menefee the current property was in pretty good condition and wouldn't require any immediate rehab.

If I find a really good deal, I'm sure I could obtain financing from a credit union, bank or even family.

@Stephanie P. I'll keep looking, but I think that you may be right, it might be best to just wait until fiances and the timing on the leases are right.