5% downpayment for a 6+ unit building?

[Andrea Galvez]

Hello Everyone, I'm interested in a building with 6 units in Indiana, but I dont have enough money for a 20% down on a conventional. Does the 5% down applies on buildings with more than 4 units as well? 

And a second question, How much interest should I pay to the people lending me some money? I was going to give them a 10% APY for keeping the money with me for 3 years, is that good? too low? too high? 

[Conner Olsen]

Quote from @Andrea Galvez:

Hello Everyone, I'm interested in a building with 6 units in Indiana, but I dont have enough money for a 20% down on a conventional. Does the 5% down applies on buildings with more than 4 units as well? 

And a second question, How much interest should I pay to the people lending me some money? I was going to give them a 10% APY for keeping the money with me for 3 years, is that good? too low? too high? 

 Once you go to 5 units, the property is technically considered commercial property to banks so you'd need to get a commercial loan. Those loans typically require 20-25%. When considering returns to give investors, think about what kind of return they can get elsewhere. What would be the return if they put it in the stock market, bonds, syndications, real estate notes, etc.

[Jeremy D. Flood]

Quote from @Conner Olsen:

Quote from @Andrea Galvez:

Hello Everyone, I'm interested in a building with 6 units in Indiana, but I dont have enough money for a 20% down on a conventional. Does the 5% down applies on buildings with more than 4 units as well? 

And a second question, How much interest should I pay to the people lending me some money? I was going to give them a 10% APY for keeping the money with me for 3 years, is that good? too low? too high? 

 Once you go to 5 units, the property is technically considered commercial property to banks so you'd need to get a commercial loan. Those loans typically require 20-25%. When considering returns to give investors, think about what kind of return they can get elsewhere. What would be the return if they put it in the stock market, bonds, syndications, real estate notes, etc.

 @Conner Olsen is correct. 6 units needs commercial financing and generally requires a minimum of 20% down. There may be some products available through a brokerage that requires less, but you may need to do a little digging. 

As for interest you'd pay on the loan, you would just need to speak with your lender and see what your options are. 

[Ned Carey]

How much you give investors loaning you money is totally negotiable. It depends to a large part what their expectations are. 

Your old aunt Millie may think it is a scam if you offer 7%. That is just to good to be true. I on the other hand wouldn’t even consider something that low. 

[Andrea Galvez]

ok, I understand. Thank you so much for your time! 

[Tom O.]

Question: did you ever do this deal? I have a banker who has considered doing only 10% down if there's other buildings in your portfolio that can support the remaining 10%. Like say you have $50K in equity in another building. He might accept 10% down on the new buy with an equal amount as a lien on the building you already own. I can PM you his name and bank. I've done two loans with him but none using this feature. 

[Erik Estrada]

6 Units is considered commercial. You can get away with 10-15% down through hedge fund financing. 

You can do 3.5% down via FHA loans if you plan to house hack a 1-4 multifamily. The catch is the self-sufficiency test.

[Sarita Scherpereel]

Hi @Andrea Galvez Yes, unfortunately 5 or more units is considered commercial and you'll have to use commercial financing. Which is why buyer's love 4 units and it's the most sought after inventory in most markets. You get more units which can offer better COC. FHA has the self sufficiency test which also makes 4 units more valuable because you have a better chance of pass the SS test with 4 units versus 3 units. 2 units doesn't require the SS test so buyers also tend to like that inventory for FHA so they can avoid the SS test.

[Eudith Vacio]

Hey @Andrea Galvez - I realize this is an old post but I was just curious if you were able to find financing and also curious where the property in Indiana was at?

[Robert Ruschak]

Hello Andrea Galvez

This is my recommendation! Invest into a 2-4 unit and you will be able to finance it under a FHA loan and the minimum down payment of 3.5%. You will have to live in one unit at minimum one year!

Once you go beyond 4 units, then the financing terms are different and will deal with a commercial lender ….  I am a realtor/investor and work with several investors!

[Eli Schwarz]

Quote from @Tom O.:

Question: did you ever do this deal? I have a banker who has considered doing only 10% down if there's other buildings in your portfolio that can support the remaining 10%. Like say you have $50K in equity in another building. He might accept 10% down on the new buy with an equal amount as a lien on the building you already own. I can PM you his name and bank. I've done two loans with him but none using this feature. 

 Hi Tom,

I’d be interested in finding out a bit more about this product.

Thanks