We found a 5-plex that was owner occupied that we really wanted to buy but of course couldn't get conventional financing for. Before we could figure out how to finance it, they took it off the market, but I expect to see it come back up sometime in the near future.

I have since discovered BP and my eyes have been opened to different strategies we could use. Can anyone help me with the pros and cons, or suggest another way? Thanks!

1. Seller financing.
Pros: They might accept a lower downpayment than conventional loans, terms are negotiable, we are currently close to the DTI income with the banks but the seller might not mind that since our first 2 properties are cashflowing.
Cons: Talking them into it, price to refinance when the time comes, interest rates will likely be higher when we can refi in 2 years, we'd have to convert to a 4 unit to qualify for conventional financing

2. Hard Money Lender.
Pros: Faster closing, possibly smaller DP due to the loan to value, they might not mind that we are close to the DTI limit
Cons: Higher interest rates, need to refinance, due to DTI probably can't refinance conventionally until 2015 when our current properties start counting for us rather than against, still have to convert to 4 unit for conventional loan.

3. Commercial Loan: I wasn't able to find anyone who would finance this since it was (well) below a $500k investment. I would have kept looking but the seller took it off the market and we got moving on another couple of properties.

4. Blanket loan: This is a new idea, but could I refinance our first two properties and include this one under a blanket loan? If they are looking for $500k in assets in the loan, we'd have to add another property or two to the deal.

More info on the property:

There are 3 units occupied by tenants. The newest tenant has been there for 4 years! The owner's son occupies the studio and the owners are in a 2 bedroom. These two units can be easily made into one by putting in a door between the two, making it a 3 bed 2 bath. Not sure if we'd have to take out the extra kitchen to qualify for a conventional loan. They can also be changed just as easily into two one bedroom apartments, any of these configurations would work well in that area. Any of these configurations would produce about the same amount in rent, maybe $100 more as a 5 unit than a 4.

After reading @Brandon Turner's article on MF investing, I am not wondering if we can skip tearing out a wall to qualify as a 4 unit, and just make that unoccupied studio 'storage space' like he was doing for that property. If we do that, or do the full conversion into a 4 unit, at what point can we go back to a 5 unit?

The couple that owns the place invested in rental property in the area for many years. They have lived in this one and kept refinancing it to obtain more property. It was always their best money maker which is why they still have it now. It is very well maintained.

More info on where we're at:
We started looking at rental property in August of 2012, got our first triplex under contract in November and closed in January. Got another triplex under contract in February and should close on that next week. With these two and our mortgage, we're at about 36% DTI, the bank says they will only allow 43%, and this property is worth about 2x what we could afford under that rule. Once 2015 hits and we have 2 years of landlording under our belts, we'd have no problem qualifying for this under those rules. Our credit scores are great, my husband's income is great and secure. Keeping some money back a as reserve, we have about 15% to put down on this property, but with income from the rentals and job and some stuff we're selling, should have the money needed for 25% down and closing costs in more like 3 months.

5 plex financing strategies

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