new investor into multifamily investing--looking for experienced investors for advice

[Gomez Agou]

Hello everyone, 

I am a new investor. I bought an apartment in 2019 as a primary residence. Moved out of it since 2021, since I got posted overseas for work. Now I am trying to buy a multi-family home (2-4 units). I got several questions: 

1. Down payment. Everywhere I turn, I am told that need at least 20% and plus as down payment. i wonder whether there is any way to get a lower percentage for the down payment. I can manage to bring 150 K at best. What can I expect for the property price to look for? 

2. Home equity loan. I wanted to use the equity on my apartment to reach my 150 K as downpayment. My mortgage on that apartment is 211K. The apartment is now worth 350 K. A lender told me that I can get 40 K max out of it. I found it low. Am I wrong? 

3. Form for the borrowing. I am still wondering whether I should borrow as an individual or create a LLC (in the making). What would be your advice? My goal here is to max out the loan amount while delinking the loan amount from my income debt ratio. Does it make sense.

4. Location. Though this is a bit of a vague question, I have looking for a place where the market is growing without property price being on the high end. Any good advice there. I am thinking about Michigan or Baltimore or Florida. 

Thanks for your help. I am happy to have a quick chat by email, over the phone or zoom. 

[Zachary Ware]

Glad to hear about your story and you are in a great place to ask questions. To briefly answer a few of yours: 

Down payment: If you do not already have one, an FHA loan can require you only bring 3.5% down. Now there are more costs involved and I would account for bringing at least 5% of the purchase price to closing. A quick way to estimate how much you can purchase is the % / fund you have. If you are going with an FHA loan(5%) and have $150k to bring to close, you are looking at a property up to $3,000,000. FHA loans can be more strict with their lending requirements and you need a high W2 salary to support such loan amount.

Another option would be a DSCR loan which is typically less stringent on lending requirements that an FHA or conventional loan. These types of loans will be based on the property's cash flow and not your income. With these, you can expect to bring 20% nonpayment plus fees and closing costs. If you are using $150k to invest, you should be looking at properties around $750k with this down payment.

With an FHA loan, you will be borrowing directly and not through an LLC while you can use almost any entity you want with a DSCR loan.

I hope this was helpful!