is 85% LTV possible for Multifamily purchase?

Question

I am located in the far Chicago west suburbs and short on the 20% down for a 12 family.

Norm is to put 20% down but is anyone aware of a lender that will got with 15% or 12% down?

The 12 unit building is listed for 925K so before doing an offer and negotiating the price I will like to get pre-approved putting 12% or 15% down.

Any advice comments or info greatly appreciated.

Ruthber P. · Answer

Thanks to all for the comments.

As Greg Adlington comment I should give a little more insight to the deal.

The 12 family is cashing out positive, over 10% cap rate, fully rented, no repairs need it for now, rents are a little low so there is some room for improvement, not planing to live on the premises, just buy and hold, no second mortgage from seller,

My credit score is 775, I paid off my major credit card every month, no car note, no mortgage, just renting for now; counting rent which is my biggest expense my Debt to Income Ratio is 31%, I am self employed, got a little LLC and have all tax papers, banks statements to prove income and that sort of things.

Does any other members have some preferred lender experience in Chicago, IL area?

Please let me know if any other info need it.

David Tiemann · Answer

I bought 12 units last year and got 85%.  It was through a local bank where we have an established relationship.  They wanted 20% down.  I showed them that if they let me keep the 5%, that would be enough to replace all of the windows in the units.  (I was going to replace them either way so that I could raise rents.)  This was a commercial loan.

Another idea I heard on a Bigger Pockets Podcast was a guy who asked the bank to allow him to deposit $100,000 into a 1 year CD at their bank in exchange for a lower down payment.  They agreed.  He also said that if he got in a pinch and needed some short term cash he could get a line of credit using the $100,000 CD as collateral.

Good Luck!

Syed Lateef · Answer

A FHA loan must be on 1-4 units only. 12 unit property you would need commercial financing with 25% down

Vitaly Lunev · Answer

Just to clear up some confusion in this thread, you absolutely can get a Multifamily FHA loan (it falls under Section 223(f)) with up to 85% LTV (it can go even higher if it is an affordable property). The specific issues that you will run into are the loan costs, most lenders, including me will struggle to make the economics make sense on an FHA loan  under $1MM (the economics changes somewhat if it is an existing FHA loan), because of the amount of work involved in getting the loan done.  There are also some other factors that need to be considered, such as are you going to self-manage or use a third-party? Are you planning on any repairs/value add, which can be factored into the loan and make it more competitive? If you want me to walk you through those feel free to PM me.

Jonathan R. · Answer

I did an analysis on this with a lender that offers 85% LTV on investment property loans. It wasn't worth it to me because they required mortgage insurance which coupled with the increased payment because of more financed made it harder to achieve decent cash flow. With a 12 unit property though this may not be as hard to achieve.

Greg Adlington · Answer

There are some lenders who will go to 85%.  It will depend on the strength of the deal otherwise.  For example, do you have excellent credit, other income, how well does the property cash flow, are there any pending capex costs etc.  I can likely help if you have good answers to those questions.  You will pay a little premium in rate, but that's the cost.  Let me know if you are interested.

Clifford Kearns · Answer

Can get 90% on purchase....

Joseph Gozlan · Answer

@Ruthber P. you have a few options:

1) get a bridge loan that will go 80% LTC (assuming it's a value add play).

2) get the seller to carry some of the note

3) get a partner to put in the short funds for an equity stake

4) Hard money lenders (better know what you're doing if you choose this one)

Nathan Click · Answer

@Ruthber P. - Not likely for a buy and hold in the sub-million bracket.  85% LTV for flips is more do-able.  In the multi-million CRE space we can employ lots of tools such as mezz debt and equity financing to get the LTV up.

Mark Ainley · Answer

@Jeff Burdick Good question...not 100% sure on FHA as I havent done one.  Sorry if incorrect.  Thanks for correcting me!

is 85% LTV possible for Multifamily purchase?

Most Popular Reply