Key differences in 1-4 units vs. 5-12 units

[Erik B.]

Been looking at OOS small multifamily properties and I'm curious what the not so obvious differences are.

What does one need to know when looking at a 6 unit building as opposed to a 4 unit? What changes when a building is zoned commercial instead of residential?

•Lending issues/ requirements

•Tax responsibilities

•Code requirements

•Insurance rates and coverage.

•value or appraisal process

This would be non occupied properties either way and most likely funded w investment loan or private money.

Any advice or insight would be appreciated. I've read quite a few books but always looking for more if there is one pertaining to the above.

[Todd Dexheimer]

Originally posted by @Abraham Kaplan:

Originally posted by @Todd Dexheimer:

Main difference will be the financing. With a 5-12 unit you will need to get a local bank to finance it, which is tough for out of state investors. The loan will be a commercial loan, with 20-25 year am and 5-10 year balloon. You will possibly get into the $1mm+ loan amount, where you can tap in to agency debt and get a 30 year am, fixed for 10-12 years. 

Other differences - 

Possibly licensing and inspections with the city

Appraisal for a 5-12 unit will be much more expensive and is based more on the financials of the asset vs the comparable sales. 

Todd,

How much more expensive would the appraisal be? I recently bought seven condos at a complex and the lender wanted an appraisal for each unit. So that was about $600 per unit. The Appraiser did one for each unit as if it was an individual deal for every condo. If I was buying the entire 30 unit complex it would have been more?

No, your cost for 1 building that is 7 units would cost less than $600/unit. Probably closer to $1500-$2000. $600 for a condo is robbery BTW.