Financing an As-Is Property

[Ronald Enriquez]

I plan to start my real estate investment strategy with house hacking my first property. I want to purchase a 4-unit property. I am speaking to several lenders right now. One lender mentioned I qualify for a 5% down conventional loan for multi-unit. I plan to speak to him tomorrow. Another lender said I qualify for a FHA loan with 3.5% down. When attempting to pursue a 4-plex the property is listed "as-is" which I was told cannot be funded by FHA and I would need 25% down for the 4-plex.

Does it depend on the lender in order for me to qualify for a 5% down conventional loan on an as-is property? If not, do I have an other options besides putting 20-25% down?

Also to note, all 4 units of the 4-plex are occupied by tenants on current leases.

[Evan Polaski]

@Ronald Enriquez, congrats on making the jump into real estate investing soon.  I agree with @Jonathan Greene that there are inherent risks with more units.  You could have all three water heaters go out, or furnaces, etc.  Making sure you have the capital reserved is key to any successful real estate investment.

The upside of a 4 family is you have 3 other tenants helping cover your costs.  If one moves out, you still have 2 other tenants.  For a duplex, if a tenant moves out, you have no income coming in.  Additionally, for common area maintenace/capex items, in a duplex if the roof needs repaired, only one tenant is helping offset that cost.  In a fourplex, three tenants are.  

While there are risks with going straight to a fourplex versus duplex, the opposite is true too, as outlined above.  But again, as Johnathan mentioned, if you are stretching with either option, the first hiccup could be insurmountable.  Taking out a 3.5 - 5% down payment loan isn't bad in and of itself, as long as that low down payment is allowing you to already have reserves saved.  i.e. if you have 20k in cash today, and you can either put 20k down or 5k down on a 100k property, I would recommend you go with the 5k down, and keep that 15k available for the first year or so, as you get your feet wet.