Financing with partnership

[Rudy Manna]

I am thinking of buying a large multifamily (12 units) with two other investors. All three have good W2 jobs. My understanding we can still go with traditional bank financing as co-applicants. Looking to hear some real experiences and any other pitfalls I should be aware of? Are there any other options?

[Bill Gulley]

Commercial lending underwriting takes in aspects of management besides the ability to pay and credit, you'll also be looking at a LTV from 60% to 75% at the best, that's with cash down.

Without rental experience in multi family, you probably won't meet the lender's expectations of management, to cure that, include a property management company with experience, say for the first 3 years. 

These deals often go with seller financing because the owners know conventional financing limits their pool of qualified buyers and they usually like the tax deferred income with principal along with interest income. Note: Financing does not add value to any property, so don't pay more for seller financing!

Be prepared for a $1,000/1200 appraisal with bank financing, same can be for inspections and you really need a good inspection. The bank may want 6 months PITI maintenance/vacancy in reserves as well, in other words a good cash reserve after closing.

Hopefully, you'll go to an attorney for your partnership agreement, the lender needs to see this and one off the internet that misses buy outs, conversions of interests and key areas for financing risks won't look good as to your ability to manage or as to your grasp of business, see an attorney!

Good luck :)