What kind of financing offers are available for 1M+ Multi Family Apartment buildings?

Question

When I was 18 (Now 22) I found the site Loopnet, and living in California I was shocked at the kind of deals that are available around the country. I never before imagined that something like this would even be possible but really liked what I saw and I told myself I got to add this as high as I can to my dream list.

Today I still don't have a lot of cash but I've got access to 50K which soon could be 70. Primarily I was now looking at purchasing small cheap wholesale rental properties and hold them, because I thought a big loan would be impossible until I found BIGGERPOCKETS.

Now I want to know what kind of financing options are there for Multi-Family given my situation and the down I have. It's cause I'm confused some people say it's the same as getting an expensive house and some say it's more business oriented so you have limited options. Cause I know one thing I can walk into the bank tomorrow and get a 500K house here in Cali. But is it that easy to get the same 500K for a Multi family.

Please give me options.

Thank you BP!

-Rizzy

Albert Bui · Answer

I'll just speak from the point of view of the loan originator:

with 1-4 units its mostly about the min down payment needed and the debt income ratio which in essence is the entire mortgage payment/tax/ins/assessments and other obligations or net obligations divided by your gross monthly income, the ratio DTI.

with 5+ multifamily its about the 5 C's which is an article in and of itself but its similar to business lending in that the principles are all the same

with 50k, and  beginning in real estate it would be near impossible to obtain apartment unit financing they will want to see experience, perhaps case studies of properties you've partnered with or have done and succeeded and your business plan on the subject property in question, adequate liquid reserves probably 12+ months in your experience bracket, funds for down payment and closing and funds for the anticipated renovations, repairs you're going to do as well, your exit strategies lined up, a review of your character/credit report or references from experienced individuals will help.

Another way is to use other peoples experience by partnering, money, or other resources to obtain what you need in the banks eyes.

Albert Bui · Answer

On a residential 1-4 sure you could qualify for many scenarios with limited to no experience in Mo-Val homes are relatively inexpensive compared to orange county or LA county.

min qualifications are

620 fico

6 months reserves + closing/down payment

1-4 unit

you could use FHA financing as well if you're okay with living in one unit and renting the others out as well if it makes sense to do so financially

Another benefit with 1-4 is you can use 75% of gross rents to offset your mortgage if you're buying as a non owner occupied property so this requires you to have less income.

I have some other more indepth articles on my BP blog about financing real estate and what to look out for as well.

Good Luck

Robert Leonard · Answer

@Rizwan Alam I'll call you Rizzy, you should listen to both of the Ben Leybovic <sp?> podcasts and also the Ken McElroy podcast.  Ken McElroy has a ton of multifamily property investing info on his website that you can find links to in the show notes from the podcast he was on here on BP.  You probably want to read his books too.

Yes, big dreams are great, but you really need to know what you are doing and put yourself in a position to be able to make them possible.

Roy N. · Answer

Another avenue you could explore is to find an experienced, successful, local investor in multi-unit properties and approach her/him about partnering on a property acquisition as a means for you to lean.  Bring your 50K to the table; it will indicate you are serious in your intent and won't be wasting the investor's time in mentoring you.

It is most likely your 50K will net you a minority ownership position and little decision making authority, but lots of opportunity to learn.   Patience is the key to real estate investing - a hard thing to master at 22 (I still have to watch myself and I'm more than twice that age).  Take your time to find, vet and approach the right investor/mentor with whom to work.

Rizwan Alam · Answer

Anthony Gayden

I like the way you think man I really do. You know I respect everyone's opinion and advice, this is why I ask questions. But everyone always likes to tell others about the hard way, or the risks involved, and I know I'm the young one and others are wise. But  fortunately you always have to make your own decision, this is why I make the most in my family and I'm only 22. But I'm not saying this as bragging, I'm just saying I wish sometimes people would provide a more encouraging guide with real possible answers.

Thing is I worked hard to save up what I have. As always I look to make a safe investment, so I was looking to make small cash properties, because I never knew there were loans available even for Multi family. Well I knew there were loans available but didn't know it was as easy as some of the other BiggerPockets threads tell it to be. Based on that I asked for a. List of the names of the loans possible for my situation and for Multi family so I could do my research.

Anyway I'll see what I've got to do. Both options are good for now. Thanks!

Rizwan Alam · Answer

Thank you @Margo Roberts and @Roy N.

Margo Roberts · Answer

I agree that you should seek out owner financing because when you get in to the larger $1 mil range, owner financing is much more available, as with hotels and is usually the cheapest for you.  Use this for as long as you can get it and for as much as you can.    You can also get bridge or gap funding if you do not have enough cash, and also for any repairs or upgrades in order to add value to the property.  Since gap funding is pricey, you will want to pay this off as fast as possible.  Eventually, you might need to refi out of owner funding, which is possible once you are able to show a history of profit.

Anthony Gayden · Answer

If you want to do multi-family, then by all means, don't let anyone on this site convince you that you need to start with single family homes.

I always hated that advice. I knew I wanted to own and focus on apartment buildings, and I had people telling me to buy something that I didn't want because that is the way they did it. They also told me to buy in the market where I live, and they told me that I should be my own landlord. Let me just say that I ignored all of that advice as it would have gone totally against my plan.

@Rizwan Alam honestly, if I could do things over again, I would have started off even bigger. The only thing that held me back was fear. I would go out and look for owner financed multi-family deals. With a little foot work, you could probably find some good deals and need far less money down than with a conventional loan.

Joe Fairless · Answer

@Rizwan Alam for large multifamily I would run your #s using 25% down payment, 25 year amortization and 5.5% interest rate. Plan on paying 1 pt too. That will give you a general idea of how the #s shake out when you're running #s on deals.

As others stated, you'll probably need a money and experience partner/s to do a larger deal.

Jacob Ehrgott · Answer

I would recommend buying a 4 unit house to get your foot in the door. Especially if it's your first house you can use an FHA loan for only 3.5 % down and get some cash flow experience and continue building your cash reserves to buy one of the bigger apartment complexes you want.

What kind of financing offers are available for 1M+ Multi Family Apartment buildings?

Most Popular Reply