I am asked for advice all the time about financing, and particularly financing for multi-unit investment properties. As I give advice, I outline specific goals of the individual investor and the intent of the property. The multi-unit properties I would like to address are fourplexes, triplexes, and duplexes. These multi-unit properties can be financed as residential properties under the same guidelines as single family homes. Many of these units fall within the Freddie Mac and Fannie Mae conforming guidelines. This translates to more options, lower costs, and better interest rates.
With multi-unit investment properties your goal should be very clear…..CASH FLOW. Why is cash flow so important? Properties that can cash flow can survive all market cycles. Even in a down market, your strategies can shift to a “hold rather than sell” property, and because you can cash flow you can wait until the market turns. In a real estate market that is peaking you maybe able to leverage equity to buy more units, but you must analyze your numbers to make sure you can still cash flow. This allows you to dictate when you should sell rather that the market dictating when you must sell.
Financing a multi-unit or fourplex can be very easy. Fully document your income, put 30% down, have perfect credit, and be the proud owner of your income generating property. What if you do not have 30% to put down? What if you are self employed and proving all of your income is a challenge? Let’s take a look at financing options that are outside the box:
There is a long list of other down payment alternatives (i.e. equity in other properties, 1031 exchanges, self directed IRA’s, seller carry and gifted equity)
Let’s focus on self directed IRAs. There are many individuals that have spent a better part of their life working for employers that have established either an IRA or 401k. Most individuals are not aware that these accounts can be liquidated via a custodian account and used in a down payment on your real estate purchase. This is ideal for the first time investor that does not have a substantial amount of money in their checking and savings account, but have more than enough money thanks to a fully vested and employer matched contribution 401k account.
For self employed individuals, stated income loans are still available with as little as 20% down. Keep in mind that your credit score needs to be 720 or above. Your loan is subject to more scrutiny than a fully documented wage earning employee, but you still have options. Just make sure the property cash flows.
2008 Highlights for Conforming Four Plex Loans:
Maximum loan amount -$801,950
LTV – 75% to 80% (depending on credit score)
Down Payment – Self Directed IRAs, 1031 Exchanges and Gifted Funds