Investment Lending: 30% Down Typical?

[John Barnes]

Hi BiggerPockets,

Quick backstory: My business partner and I (both in our mid 20's) formed an LLC and are looking at MFH's to buy as a long-term investment strategy (call it retirement planning if you will). He is located in Phoenix, I'm in Tampa.

Anyway, the question is about financing. We have been to two banks (both in AZ) and asking about financing for 2-4 unit properties. Rates have seemed reasonable although have fluctuated more than we were anticipating, from lender to lender, ranging from 3.8-6.8%. However both required 30% down. We were surprised by that as it seems like a common strategy on here is to put as little down as possible, 10% or less. Are most multi-unit properties required to put down 30% by most banks, or do we need to shop more lenders?

Is there a different stratey most people use to finance MFH's?

From what I read, hard money lenders would require significant down as well, or be at a high rate. 

Any insight would be particularly appreciated.

Thanks,

John and Austin

[Hattie Dizmond]

Non-owner occupied properties financed through non-insured mortgages are going to generally require 25 to 30% down.  You guys have no experience, no track record and no relationship with the lender, so expect that to come in on the high side.  The same applies to rates. 

The down payment requirement goes to the concept of shared risk.  The lender wants to know you are risking something in the deal.  If you buy a $300k property and have to put 30% down, $90k cash becomes a decent incentive for you to service that debt as promised!

@Ben Leybovich has some great blog posts about using OPM (other people's money) for your down payments.  Ben's model is to get 100% financing on everything.  Here's some blogs about NOT making down payments, just to get you started...

http://www.biggerpockets.com/renewsblog/2013/12/24/dont-make-payments/

http://www.biggerpockets.com/renewsblog/2014/09/16/is-it-really-necessary-to-make-a-down-payment/