Multifamily newbie from Salt Lake City, Utah

[Flip Chavez]

Hi everyone. My name is Flip, and no I’m not into home flipping it's just my name. My fiancé and I have two single family homes (one rental and one house hacking with a housemate) and we’re looking to make the move into multifamily investing this year. The goal is to get into a 4 to 6 unit multifamily now then take that experience and get a 10+ unit or our next purchase.

I’m currently about three weeks in on the education part of my journey into multifamily investment there's so many resources it's overwhelming but a great problem to have. So far I’ve created my own analysis spreadsheet like what is offered on BP and making sure to take into account ALL of the different expenses. I’m analyzing at least one property a day to understand what is out there and what may fit my investment strategy. I’m feeling better and better every day on my analysis skills.

Where I’m feeling a little stuck

- Financing: I’ve got lots of questions on commercial vs traditional mortgages when it comes to multifamily. Do I need to find a lender in the state I want to purchase? What does the process of using a commercial lender look like, I’m only familiar with single family loans where I live in the property.

- Legal structure: I just finished reading Rich Dad Poor Dad and I’m thinking that owning these properties as an individual is not enough and maybe a different legal structure will be the way to go.

- Brokers: Does it work the same as single family where each party has a real estate agent? Is it tough to work with a broker when you have no multi family experience yet.

The great thing about this community is every day I learn something new and the knowledge is out there I just need to consume it. I can't wait to learn from y'all and share our journey.

Cheers,

Flip

[Ken Naim]

@Felipe Chavez Hi Flip, a 4 unit is still considered residential. 5+ is commercial. Commercial lending is a bit different. Loan terms typically are amortized over 25 years not 30 making the payments a bit higher.

Even though the loan amortization is 25 years, the loan term is typically shorter, say 5-7 years,. The loan needs to be refinanced or paid off at the end of the term.

Although some multifamily lenders have a 30 year product. Interest rates are a little bit higher than residential and typically they are only locked on for 3-7 years or can be a variable rate from the beginning.

Commercial loans typically have prepayment penalties that be significant in the early years of the loan. The longer the loan the higher the penalties early on.

It gets more complicated with a "government" loan, think Fannie Mae, Freddie MAC.

There are normally higher costs/fees for a commercial loan, some need to be paid in advance.

This is not meant to discourage but to inform, so less suprises. There are many good commercial mortgage brokers that can explain the specifics better than I can and usually they can shop the deal around to find the right lender for you situation. Some specialize in only one type of commercial, say multifamily vs. Industrial.

Banks typically require a 20%-35% downpayment, Fannie and Freddie can be lower but i don't have much experience with them.

Larger loans are easier than smaller ones. Loans under $1m are harder than 1-5m which are harder than loans over $5M.

I'm sure I'm missing somethings, so hopefully others will respond with more information.