First Time Investor - Commercial Multifamily Financing

[Chris Washington]

Hey BP...have a question hoping you can help me out.

I'm just starting out in REI, and working on the plan to buy my first investment property. After researching potential strategies, I am focusing against commercial, multi-family buy and hold (5+ units). Understood that some people will recommend starting out in SFH, however the idea of buying right, forcing appreciation through strategically increasing the NOI, and refy-ing out capital that can be used in future investments plays to my personal strengths and feels like the right strategy for me to pursue. I also like the idea of financing based on the property instead of personal finances. I have read success stories here on BP of people who have started in both SFH and MFH, so i figure either way is possible so I may as well go for what I'm interested in.

Clearly, a key element of being successful in MF is financing right. I also understand being an unqualified investor may make acquiring quality commercial financing more difficult. My questions: 

1. Could any investors who bought commercial MFH as their first REI share how they overcame this financing hurdle?

2. What is the type/cost of financing that I would be most likely to receive? I am 29, 750+ credit score, $120k annual income, no debt outside of my current personal home mortgage ($325k). My first purchase will likely be 5-10 units, and looking in the $300-400k range. I could put 25% down, but would like to try for 20% to ensure i have plenty of money for improvements, reserves, etc. 

Sorry for the long-winded post, but wanted to be sure I provided enough info for you to understand my position. Thanks in advance for any and all responses!

[Jeff B.]

Originally posted by @Chris Washington:

Hey BP...have a question hoping you can help me out.

I'm just starting out in REI, and working on the plan to buy my first investment property. After researching potential strategies, I am focusing against commercial, multi-family buy and hold (5+ units). Understood that some people will recommend starting out in SFH, however the idea of buying right, forcing appreciation through strategically increasing the NOI, and refy-ing out capital that can be used in future investments plays to my personal strengths and feels like the right strategy for me to pursue.

Clearly, a key element of being successful in MF is financing right. I also understand being an unqualified investor may make acquiring quality commercial financing more difficult. My questions: 

1. Could any investors who bought commercial MFH as their first REI share how they overcame this financing hurdle?

2. What is the type/cost of financing that I would be most likely to receive? I am 29, 750+ credit score, $120k annual income, no debt outside of my current personal home mortgage ($325k). My first purchase will likely be 5-10 units, and looking in the $300-400k range. I could put 25% down, but would like to try for 20% to ensure i have plenty of money for improvements, reserves, etc.

I cheated - - 1031 a SFR rental with high cap gains directly into a 6-unit MFU.

Commercial 5+ is 

• always an ARM
• an LTV 70-75% so forget cheap buy-in
• has nothing to do with your DTI or Fico
• has everything to do with the DSCR proving the property supports itself.