Four unit vs five unit+ (multifamily, commercial vs. residential)

[Jack B.]

I've seen a video on youtube froom "Commercial Property Advisors" saying that it is actually better to buy a 5+ until as opposed to a 4 unit building because then the loan is commercial and the property cash flows factor into the evaluation of the property in underwriting (in addition to you still being checked out for income, assets, debt, etc.), whereas with residential, you can qualify for residential on just your income and assets alone, no evaluation of the property.  

So I come to ask from those who know the pros and cons of the two because they have done both kind of deals. 

For me, I have three single family homes (not counting my primary residence) that would net me about 375K. One is just now being leased out so I'd plan to stagger the timing of the sale of that one, but I could have 250K equity from two other houses and another 100K cash on hand to invest without selling the third house. I also would not consider selling my primary residence instead, 10-31 exchanging the 3 other properties over time to buy apartment complexes.

Given that I would be staggering the sales of at least some, of the houses, I could see myself buying a 4 plex here, a 4 plex there, etc. This way I don't have all my money in ONE complex and I don't have to come up with a huge down payment right away. Although I suppose I could put 25% down on a million dollar apartment complex and show reserves still, I'm not sure whether it's best to buy one big complex or a series of four plexes. Ultimately this would make it one giant step toward my goal of having many doors so that a small increase in rent in most units results in a huge pay raise for me. :-)

[Douglass Benson]

We started with a 4 unit and the loan was a pain.  The bank was a small town operation and we had no legitimate experience as rental operators so they were nervous.  The bank put liens on our cars (which weren't worth the paper of their titles!) in an attempt to protect themselves.  Needless to say, we refinanced in a year and kicked them to the curb.  Regardless, the two years of experience made ALL the difference for our next purchase.  We had no problem convincing a DIFFERENT bank that we knew what we were doing.  We had the proof of that.  Plus we also knew the pricing and cost factors most relevant to multi-family so we had no problem bringing a deal that clearly was a winner to the bank.  They sprang for our 16 unit and we have never looked back.