Newbie trying to get head around properties with 5 + Units

[Chris Stewart]

I am a newb.  I have been reading and listening and analyzing and visiting as many places as I can over the last couple of months.  While I am still a little short of analyzing a 100 places I am working there as quickly as I can.  My main aim to build up a portfolio of cash flowing properties.

The one thing I have noticed is that multifamily homes in the area I am looking with 6 units seem to cash flow better than multifamily with 4 or less units.  This generally comes down to the fact that the larger properties tend to run at 80 to 95 a unit while smaller multifamily tend to run at 115 to 130 a unit.  My guess is this because smaller multifamily units are really easy to buy while the larger multifamily need commercial loans and hence put people off.

There also seems to be stricter loan requirements for commercial with 20 to 25% being required compared to as low as 15%.  Also with commercial loans you will tend to have between 50 and 100 basis points higher interest rates and need to be refinanced after 10 years with amortization worked out on a 20 to 25 year term leaving you more open to interest rate moves.  Is this all correct?

I am also really confused on when I should be creating an LLC. To get a commercial loan I am guessing I would need to have this setup before hand? Do loans on smaller properties have issue with you using an LLC? Anything I should be aware of around this process?

I am sure this has all been asked before.  I really appreciate all help