Financing my first multi family Property

[Larita O'Bannon]

My husband and I are interested in purchasing a duplex, triplex or quad in the Cincinnati area

This would be our first real estate purchase since buying our own residence

We are trying to determine the best way to finance our project, we are considering a conventional Mortgage and borrowing from my 401(k) for the down payment

Just wondering if this sounds like a good strategy

Would love to hear your thoughts and comments, thanks

[Duane Gunkler]

@Larita O'Bannon -- Welcome, and congratulations on starting the journey!  I am doing the same thing right now with conventional financing and a loan against my 401k.  I think you might get mixed responses on taking that approach, but for me it made sense.  Obviously, like everything, there are risks.  The biggest risks with taking the loan against the 401k is that if you leave your job (voluntarily or otherwise), you typically have 90 days to pay off that loan or it will be treated as a withdrawal and subject to the 10% penalty and taxed accordingly.  I'm guessing that you are not going to be house-hacking and living in the multi-family, but rather maintaining your current home with your family.  If that assumption is correct, you will need 20-25% down on the MFH.  Typically you can borrow up to $50,000 against your 401k (or half the balance if less).  Also, if you use the 401k loan toward a primary residence, you can spread the payments out over 30 years, but on an investment property, you will have to pay it back over a max of 5 years.  I only mention that to be sure you factor that in as part of your cash flow.  Even though you're paying yourself back the interest, it will be a new monthly amount coming out of your paycheck, and could be a significant amount depending on the size of your loan.  Best of luck with it and keep us posted!

@April Paytes --  The biggest difference in your scenario vs. Larita's is that you will need to go with Commercial financing if it's a 6-unit.  Anything over 4 units is treated as Commercial.  Keep in mind the financing terms aren't typically as attractive when doing your cash flow.  I haven't done commercial, but from everything I have read on here, it typically carries a little higher rate, and shorter term.

Just my newbie two cents, but look forward to hearing all about both of your journeys!!!