Multifamily newbie from Salt Lake City, Utah

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Multifamily newbie from Salt Lake City, Utah

Flip Chavez
Member since 2021 · 1 post · 5 votes

Hi everyone. My name is Flip, and no I’m not into home flipping it's just my name. My fiancé and I have two single family homes (one rental and one house hacking with a housemate) and we’re looking to make the move into multifamily investing this year. The goal is to get into a 4 to 6 unit multifamily now then take that experience and get a 10+ unit or our next purchase.

I’m currently about three weeks in on the education part of my journey into multifamily investment there's so many resources it's overwhelming but a great problem to have. So far I’ve created my own analysis spreadsheet like what is offered on BP and making sure to take into account ALL of the different expenses. I’m analyzing at least one property a day to understand what is out there and what may fit my investment strategy. I’m feeling better and better every day on my analysis skills.

Where I’m feeling a little stuck

- Financing: I’ve got lots of questions on commercial vs traditional mortgages when it comes to multifamily. Do I need to find a lender in the state I want to purchase? What does the process of using a commercial lender look like, I’m only familiar with single family loans where I live in the property.

- Legal structure: I just finished reading Rich Dad Poor Dad and I’m thinking that owning these properties as an individual is not enough and maybe a different legal structure will be the way to go.

- Brokers: Does it work the same as single family where each party has a real estate agent? Is it tough to work with a broker when you have no multi family experience yet.

The great thing about this community is every day I learn something new and the knowledge is out there I just need to consume it. I can't wait to learn from y'all and share our journey.

Cheers,

Flip

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Ken Naim
Investor · Lake Worth, FL · Member since 2016 · 233 posts · 140 votes
5y

@Felipe Chavez Hi Flip, a 4 unit is still considered residential. 5+ is commercial. Commercial lending is a bit different. Loan terms typically are amortized over 25 years not 30 making the payments a bit higher.

Even though the loan amortization is 25 years, the loan term is typically shorter, say 5-7 years,. The loan needs to be refinanced or paid off at the end of the term.

Although some multifamily lenders have a 30 year product. Interest rates are a little bit higher than residential and typically they are only locked on for 3-7 years or can be a variable rate from the beginning.

Commercial loans typically have prepayment penalties that be significant in the early years of the loan. The longer the loan the higher the penalties early on.

It gets more complicated with a "government" loan, think Fannie Mae, Freddie MAC.

There are normally higher costs/fees for a commercial loan, some need to be paid in advance.

This is not meant to discourage but to inform, so less suprises. There are many good commercial mortgage brokers that can explain the specifics better than I can and usually they can shop the deal around to find the right lender for you situation. Some specialize in only one type of commercial, say multifamily vs. Industrial.

Banks typically require a 20%-35% downpayment, Fannie and Freddie can be lower but i don't have much experience with them.

Larger loans are easier than smaller ones. Loans under $1m are harder than 1-5m which are harder than loans over $5M.

I'm sure I'm missing somethings, so hopefully others will respond with more information.

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  • Ken Naim
    Investor · Lake Worth, FL · Member since 2016 · 233 posts · 140 votes
    5y

    @Felipe Chavez Hi Flip, a 4 unit is still considered residential. 5+ is commercial. Commercial lending is a bit different. Loan terms typically are amortized over 25 years not 30 making the payments a bit higher.

    Even though the loan amortization is 25 years, the loan term is typically shorter, say 5-7 years,. The loan needs to be refinanced or paid off at the end of the term.

    Although some multifamily lenders have a 30 year product. Interest rates are a little bit higher than residential and typically they are only locked on for 3-7 years or can be a variable rate from the beginning.

    Commercial loans typically have prepayment penalties that be significant in the early years of the loan. The longer the loan the higher the penalties early on.

    It gets more complicated with a "government" loan, think Fannie Mae, Freddie MAC.

    There are normally higher costs/fees for a commercial loan, some need to be paid in advance.

    This is not meant to discourage but to inform, so less suprises. There are many good commercial mortgage brokers that can explain the specifics better than I can and usually they can shop the deal around to find the right lender for you situation. Some specialize in only one type of commercial, say multifamily vs. Industrial.

    Banks typically require a 20%-35% downpayment, Fannie and Freddie can be lower but i don't have much experience with them.

    Larger loans are easier than smaller ones. Loans under $1m are harder than 1-5m which are harder than loans over $5M.

    I'm sure I'm missing somethings, so hopefully others will respond with more information.

    4Reply
  • Ken Naim
    Investor · Lake Worth, FL · Member since 2016 · 233 posts · 140 votes
    5y

    @Ken Naim Legal structures can depend, LLCs are common for holding real estate once there is enough equity to make it worthwhile. Commercial typically falls into this category.

    S-Corps are better for management. When your ready consult your accountant for what is best in your scenario.

    As for brokers, it can be one or two. A lot of deals are off market so only one broker is involved. Yes it can be tough getting a commercial broker to give you the time of day when you are first starting out but those that don't aren't worth your time. Keep reaching out and you'll find one that will work with and guide you.

    If you purchase up to 4 units a residential real estate broker is the way to go and they are easy to talk to, although many are not knowledgeable with investment property. Try to find one that owns investment real estate.

    1Reply
  • Wale LawalBusiness Member
    Real Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
    5y

    @Flip Chavez You have received great advise from @Ken Naim

    I will just add that you continue to educate yourself and close on your 4-units first before going to higher units. 5+ units are considered a commercial and they come with more stringent terms so it's always good to have a 4-units first before 5+ units. I like the fact that you created your own spreadsheet and analyzing 1 property per day.

    Identify and work with a Rockstar Investment Loan Officer and they will educate you on your loan options. Any reputable lenders can lend out of state so it's not compulsory you use a local lender....Local lenders may be easier to work with though especially because this is your first one.

    LLC is the most common one for many investors including myself.

    1-4 units is considered Single Family, 5+ is considered commercial and commercial agents have special training working with investors. Both parts (Buyer and Seller) usually have their Agent representing their interest except is an off-market deal..I will suggest you use an agent so you can get full representation and free education in the process.

    I can't wait to read your success story man!

    Happy investing.

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    3Reply
  • Amy KendallBusiness Member
    Real Estate Broker · Lehi, UT · Member since 2016 · 397 posts · 318 votes
    5y

    @Flip Chavez I think @Ken Naim and @Wale Lawal both did an excellent job on addressing your concerns.  If you plan on sticking to a fourplex, then the process will be very similar to what you are familiar with in purchasing your two other homes.  I also have some experience with local commercial lenders if you decide to go that route.  I think you have a great foundation to start from and the biggest challenge will be to find the right property.  Once you have that, you will be able to sort out and jump through these little hurdles in the process of purchasing the property.  Best of luck!

    1Reply
  • Nic DeSeelhorst
    Real Estate Agent · Salt Lake City · Member since 2020 · 7 posts · 1 vote
    5y

    Hey Flip,

    Are you building your portfolio in Salt Lake City or outside of Utah? I have similar ambitions to you so I'd love to pick your brain about your goals and strategies.

    0Reply
  • Benjamin AakerPro Member
    Rental Property Investor · Brandon, SD · Member since 2015 · 1k+ posts · 1k+ votes
    5y

    Hi Flip and welcome to real estate investing. You'll need to decide whether or not to go with small multifamily and live in one unit. I recommend a 4-plex for this. It'll be a lot easier to get a loan and a typical real estate agent won't have too much trouble helping you. Learn about that and move up to the medium and large multifamily, where the efficiency gets even better. Good luck.

    0Reply
  • Julio GonzalezPro Member
    Specialist · West Palm Beach, FL · Member since 2008 · 4k+ posts · 1k+ votes
    5y

    Welcome to BiggerPockets, Flip! Best of luck investing!

    561-253-6640
    0Reply
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