How to best finance my first multifamily home Boston

7 Replies

Hi I am new to BP and REI and have questions about financing my first 3 Family home. Is it ever a good idea to Cash Buy a home I plan to fix up, rent out, and hold? Or does it make more sense to go with conventional financing? I'm concerned about rents coming in & being taxed with out any mortgage payment going out to balance it. If I find a distressed property can I buy cash and refinance 6 months down the line to get 75% LTV? Is it always better to start out with conventional financing to keep my other cash available for the next deal? I'm waiting to speak with a CPA about my investment goals but would also appreciate any advice from the BP community.

Your profile says Massachusetts so Im assuming you are looking to invest in MA? One thing you will learn quickly is that MA is unlike most parts of the cou try. You dont see multis for $50K that need $25K in improvements and an ARV of $150K. You will find the occasional investor that found the big score but its not the norm. Look for a decent 2-3 family that needs work. Live in one unit while you renovate. After a couple years refi cash out and buy another. Learn the business slowly. No need to dump all your cash into the first deal. Good luck.

@Jennifer its really a question about equity or debt. Equity being your ownership and debt being the limit claim on your asset. REI aren't any different than a venture capitalist or hedge fund manager. Debt provides you with both a tax shield (taxable interest) and leverage to grow, but a risk. Equity gives you complete control, but growth and liquidity risks. If you have the funding to pay cash then couldn't you keep a reserve amount aside, in the event you have a vacancy-month. If you pay cash and have a vacancy-month you still lost money (opportunity costs), you just didn't gain any money on the borrowed tax deductions and additional rentals the other months. Talk to your CPA first and don't over leverage:)

@Jennifer Whalen

"Is it always better to start out with conventional financing to keep my other cash available for the next deal" I believe so, then you'll realize what you're buyers will be going through o get qualified, should you need to sell.

Why not partner with @Rob Beland ? He seems to already BE where you're going.

I would also look at ROI - Annualized. To me, it doesn't always make sense to buy outright because you take a hit on the ROI. A simple example Below (everything expressed annual). Scenario 1 you are buying outright and getting 6.4% ROI on your $200,000 investment and Scenario 2 you are putting 20% down and getting 9.08% ROI on your $40,000 investment. Yes you're cashflowing $12,800/year buying outright, but you'll have $160,000 in your pocket for future investments in Scenario 2, and as you can see it will take 18 years to have more money in cash than you would if you borrowed. Even if you threw that $160,000 in a CD or something and got 3% return you would outmatch buying outright. Just a different way to look at it.

@Jennifer Whalen  

It all depends on your comfort level. If you can pay cash and then do a cash out refinance as you purchased a house with a great deal of equity than it is a great way to maximize financing. 

Thsnks everyone for the feedback. It's all been very helpful. I'm meeting with s lender and also a CPA in the upcoming weeks so hopefully they can further help me to decide how to finance. Bostons surrounding areas are so expensive that I also don't want to over leverage myself. I appreciate all the responses. Thanks again

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