How to get creative with making a 5 unit work

[Jacob Lapp]

Hey everyone,

Just bought my second multi family and things are going well!

My path/plan has been as follows.

Bought first house/ triplex with first time home buyer 5% down conventional by claiming residency for a year.

Bought my second house/ duplex with 15% down conventional claiming residency for a year.

My plan is now to use my FHA loan 3.5% down on a larger 4 unit building. (They have been scarce)

I’ve been walking around my new neighborhood and scouting out possible leads. I have come across a few great looking 5 unit buildings that I would be very interested in.

I know over 4 units is considered commercial my question to you all is

1.) Could I buy a 5 unit with the intent to eliminate the 5th unit and make a bigger 4th unit and it be considered residential?

2.) (If 1 is impossible) How could I go about structuring owner financing that is a win for the seller and myself?

Thanks in advance!

[Anna Swartz-Lopez]

@Jacob Lapp

Sounds like you are moving in the right direction! 

The lender is going to look at how many units exist in the property at the time of purchase. Another option for you may be to use short term financing (2 years) to purchase the 5 unit property, make the conversion, and then refinance into a regular home loan. 

If you have the possibility of seller financing, that may solve the problem as well. One strategy may be to use seller financing for the initial purchase and while you were making the conversion, and then refinance into a regular home loan. 

As long as the seller owns the property free and clear, you and the seller can come to whatever terms you desire. At that point it is just a matter of figuring out the seller's pain points and then being creative on how you can address them. 

Good luck!