Differences between a 2-4 Unit Building versus 5-10 Apartments

[Rick Albert]

Hello All,

I'm studying up on apartment buildings, as I thinking as a good next step for me (currently have a condo and ADU rented).

My understanding as the main differences between 2-4 units and 5+ is the following:

1. Financing: Typically they have balloon payments after so many years (5 or 10 years for example).

2. The appreciating value is mainly based on rents/cashflow, not what the building next door sold for.

3. Typically the lender wants the property in an LLC, which adds about $1,200/year in expenses (between filing and tax returns).

What else am I missing? 

Thank you!

[Patrick Drury]

@Rick Albert
Something to keep in mind that I didn't see mentioned is commercial lending is a lot different than residential. If you only have a condo and an ADU commercial lenders might turn you away from getting a 10-20 unit. I have had quite a few clients get turned down by commercial lenders because they felt they didn't have enough experience in multi-family as they described. Lenders might be able to chime in and offer a better explanation, but I just wanted to illustrate that commercial lending is a bit different in terms of getting a loan and working with lenders than residential.