Expensive area, buying multifamily with a friend to live in

Investor · Stratford, CT · Member since 2015 · 110 posts · 16 votes

Hi,

I have been considering buying a multifamily with a friend to live in. We would live in separate units. I have a some questions.

1. The area is expensive so if we both put down 10% we can get a decent payment a month so both of our living expenses are low but if the numbers don't cash flow should I still do it? I know you can't count on appreciation but it's highly likely.

2. do we put down 20% if we are living in it or try to use as little of our own money as possible? I guess the more money down, more equity right?

3. if you figure your numbers based on 20% down and refi out after a couple of years to take your money out, you'll be paying a higher mortgage payment because you took your money out? Right? I get confused with the refi...

Any opinions welcome!

Thanks

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Scott TrenchPro Member

Rental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votes

10y

Thanks JR! I think that owner-occupying like the way you are doing it is a really smart way to go about getting started in real estate and it's what I did. As for buying with a friend, make sure that you understand your exit strategies and how you'll account for splitting equity and expenses. If you couldn't get started without him, of course having the problem of having to split a large profit is a good problem! But, make sure you aren't setting yourself up for any avoidable headaches and make sure you are both clear, in writing, about expectations and commitments. I think a lot of folks would suggest you chat with a lawyer.

I think you might be able to put down less than 20%. Chat with a lender on that one. It might make sense for you to put down less than 5% with an FHA loan.

I think that if you can offset your living expenses entirely or even just mostly, you are in pretty good shape, assuming you'd want to live in the area for the next couple of years! A reduction in monthly living expense IS positive cash flow in my book.

Your monthly payment (P&I) should remain unchanged if your loan amount stays the same. If you get a larger loan when you refinance, your payment will go up assuming similar interest rates, and the payment will also go up if interest rates increase.

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JR T.
Financial services executive · Frederick, MD · Member since 2015 · 609 posts · 341 votes
10y
@Scott Trench Wrote a great blog post that I think applies here.
https://www.biggerpockets.com/renewsblog/2016/04/23/investorsgood-time-buy/
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Lesley Govan
OP
Investor · Stratford, CT · Member since 2015 · 110 posts · 16 votes
10y
Thanks JR!
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Scott TrenchPro Member
Rental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votes
10y
Thanks JR! I think that owner-occupying like the way you are doing it is a really smart way to go about getting started in real estate and it's what I did. As for buying with a friend, make sure that you understand your exit strategies and how you'll account for splitting equity and expenses. If you couldn't get started without him, of course having the problem of having to split a large profit is a good problem! But, make sure you aren't setting yourself up for any avoidable headaches and make sure you are both clear, in writing, about expectations and commitments. I think a lot of folks would suggest you chat with a lawyer.
I think you might be able to put down less than 20%. Chat with a lender on that one. It might make sense for you to put down less than 5% with an FHA loan.
I think that if you can offset your living expenses entirely or even just mostly, you are in pretty good shape, assuming you'd want to live in the area for the next couple of years! A reduction in monthly living expense IS positive cash flow in my book.
Your monthly payment (P&I) should remain unchanged if your loan amount stays the same. If you get a larger loan when you refinance, your payment will go up assuming similar interest rates, and the payment will also go up if interest rates increase.
Podcast Guest on Show #223
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Jerry Padilla
Lender · Rochester, NY · Member since 2014 · 3k+ posts · 1k+ votes
10y
@Lesley Govan
I agree with @Scott Trench going the route of FHA financing will require the lowest down payment. You have to put down 3.5% and can ask the seller to pay up to 6% towards closing costs. You could both purchase a multi-family of your own.
Conventional Financing for a primary residence still requires a decent down payment.
- A SFR requires a LTV of 95%
- A Duplex requires a LTV of 85%
- A Triplex & Fourplex requires a LTV of 75%
- A minimum credit score of 620 is required
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Lesley Govan
OP
Investor · Stratford, CT · Member since 2015 · 110 posts · 16 votes
10y
Thanks for your comments. I have 20% down, a high credit score and cash available, I'm just trying to figure out what to do. After thinking about it with the friend thing, that really won't help me lower my expenses by living in a multi so that's not happening.
The area I want to buy in IS expensive but I may be able to swing it with a multi family I just want to be able to save a lot of money, not just get by. I just have to find the right deal. Also, FHA is great, but the less you put down still doesn't help keep your mortgage down.
I'll keep plugging away looking and saving my money until I find the right place.
I really appreciate your opinions, thank you!
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