Investor · San Jose, CA · Member since 2014 · 30 posts · 14 votes
I'm looking for a multifamily (4-8 units) in San Jose, California (or nearby cities). As long as there are no foundational damages, fixer-uppers are preferred since we can go in and add value ourselves. Need to be in a good location. We will use traditional financing (20% down with regular bank loan). If you have anything good, please send it our way.
Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes
11y
Hi Uyen Chi,
Just a word of cautious. Financing is a little different between 4 units or less and 5+ units. Based on my experience, you will need a minimum of 25% down for a 4plex, and your income can be counted to cover the negative cash flow. There is no pre-payment penalty for this loan.
For 5+ units, you're looking at a minimum of 35% down, and in some cases, up to 60% down due to the current market underwriting condition. You can still get up to 75% LTV provided that the cash flow can support a minimum DSCR of 1.25, which is a rarity in our market. There is typically 3/2/1 step down in pre-payment penalty with commercial loans.
Good is in the eye of the beholder. Give us some parameters of good, and we will see if we have anything that we can send your way.
Investor · San Jose, CA · Member since 2014 · 30 posts · 14 votes
11y
Hi Minh,
I meant to respond to your message to me, but I was pulled so many directions (including the week-long Lunar New Year that my family tends to enjoy). Sorry I missed you at the last meet up.
Would you mind explaining to me what "DSCR of 1.25" mean? Thanks :-)
Thanks for the advice! I guess when I wrote 20% down, what I wanted to get across was that I'm not a cash buyer. But based on what you wrote, looks like I will be sticking to a fourplex for now.
My husband and I are discussing our options:
1) sell our current house, which we are sure to get at least $400,000 in profit (after commission and closing costs) since our loan balance on it is very low. We would move into our smaller property which is currently a rental, but we own it free and clear so no mortgage. So we should have about $500,000 to use towards a down payment on the fourplex. BUT if you ask my husband, he would only want to put down $250,000 - $300,000.
2) cont. living in our current house and keep the rental (which is cash flowing about $1,700 a month), and either buy another SFH to rent out or rent out our current house, which should cash flow of about $1,000 a month, and buy another SFH to live in.
So for me, good is a fourplex (preferably 2/1 each unit or at least 2 units being 2/1). I need it to have positive cash flow even with only 25% down. Transitional neighborhood is best where rent can be increased quickly.
Investor · San Jose, CA · Member since 2014 · 30 posts · 14 votes
11y
Oh yes, and both my husband and I will keep our day jobs so our income should be no problem, but we definitely do not want to buy anything that has negative cash flow.