First Multi-Family Investment Question

[Michael Mudrey]

Hey All, I’m looking at a small multi family (8 units) as my next investment, after a few recent single family homes. This is a bit new to me but I’m really excited about the opportunity. My big question I’m hoping I could pick everyone’s brain on is financing... At this point, I probably have enough cash available for 10-15% down. I’m wondering what my financing options are, where to start, etc? I’d love any suggestions as I look to take the next big step! Thanks in advance!

[Omar Khan]

@Michael Mudrey Since this is a commercial investment, on average, you will be expected to have a 20% down payment. 

To make up the 5-10% difference, you can try to get owner financing. E.g. your down payment = 15%, owner carries a note = 10% and financing = 75%. An alternative would be to work with the owner and have them carry the entire note (they act as a bank). In this scenario, your down payment = 15%, owner financing = 85%. 

You have to educate the owners around tax savings (if they sell, they will have to pay capital gains tax) and sustainability of cash flows backed by a hard asset that they are familiar with, among other things. 

If you decide to go down this route, please, keep in mind to structure the deal to ensure that the #s still work. Often times, investors tweak the #s to make the deal barely function (on paper) and do not leave any margin of error.