Leverage existing properties or save cash to buy multifamily unit

[Cyrus Khan]

Hi everyone, Needed some advice on how best to raise capital to buy a multifamily unit. I currently own 2 townhouses each worth about 250k-260k each. Both have conventional 15 year mortgages on them at 2.75 and 3.75 percent respectively with 20% down each. Have 165k and 120k left to pay on both respectively. Both are currently rented out. My own home is probably now worth 850k - I had bought it for 705k but have made several improvements. Have a conventional 30 year 4% mortgage plus a HELOC where my position has built up so that I can borrow 25k from it. I want to buy a multifamily unit now probably in the 750k - 1 mil range and I know commercial lenders require a 25-30 percent downpayment. I currently have 75k in cash to put down. My question is; can I somehow leverage my existing properties to come up with the rest of the down payment ? Is it a good idea ? Or shall I wait until I have saved up enough for the down payment ? Any advice/comments would be appreciated !

[Mike Dymski]

Commercial lenders in many markets will lend at 80% LTV.

I recommend finding out your commercial lenders' requirements (net worth, liquidity, DSC, etc.).

Your HELOC should have more than $25k availability with a $145k increase in the property value (many HELOCs on primary residences go to 80% LTV...or more with some lenders).

You could refinance one or both townhouses to tap into some equity.

Keep in mind your post-closing liquidity and cash reserves.  15 year mortgages, a 20 year commercial mortgage, reasonably high leverage...all a recipe for sleepless nights, or worse, with certain properties and markets hit by a hiccup in cap ex, vacancy, or the market.