New to investing,multifamily in Pa area.

I'm a first time,starting out investor in multifamily units,specifically units of ten or less to start. Will a bank look at me more favorably if I try and buy a ten unit building which spreads my risk as opposed to say a three unit building where my percentage of risk is greater? Ie.. one aprtment out of ten vacant I am only 10% carry, with 1 of 3 vacant I am 33% carry. Thanks
In Buying Property - Asked by ryan l. - Jul 21, 2009
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Answer(s)

Davide P.
Broker/Agent
Pinole, CA

For getting a loan, they'll look at totally different scenarios for 3 units vs. 10 units. Any 4 unit or less multifamily building when qualified is similar to investing in a single home. If it's vacant, what is the condition and would you be able to afford the payments on it for x amount of months, etc. If it's occupied, the bank will want to see the rents and history of the property. At this point, along with usually looking at your credit/income/etc, they will calculate the "debt coverage ratio" among other things. The basic rule is the income AFTER expenses and vacancy must cover anywhere from 115-125% of the mortgage payments.
If you happen to aim for a larger unit building, there's a few more complication in regards to financing, simply b/ there are fewer places that are willing to finance commercial property (commercial = 5+ units). Either way you should plan on having 25-30% down payment.
My recommendation would be to find a commercial lender and maybe a local bank to discuss your financing situation further.

Jul 21, 2009
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Paul S.
Broker/Agent
Glendora, CA

If you stick to 4 units or less the loan is considered conforming and is much easier to obtain. Those loans are funded with the intention by the lender to sell them to the secondary market. Guidelines for qualifying would be the monthly income discounted 25%. If the property didn't break even after the discount you would have to demonstrate you have the ability to qualify for the shortfall. You should be able to finance 1-4 units with a much smaller downpayment than 5+ would require. 5 or more units will probably require a minimum of 35% down or a debt coverage ratio (DCR) of 1.25 minimum, whichever is greater. The lender will want $1.25 in income for every $1.00 of debt service. In calculating the expenses of the property for DCR, the lender will apply a minimum of a 5% vacancy factor and a 5% management fee whether or not either actually exist. Properties with cap rates below 8% (ballpark figure) will require more than 35% down because the DCR will require a greater down to meet the 1.25 requirement. Some lenders are even higher at 1.35 right now. Stick with 1-4 units where you will only encounter a 25% discount off the income and no DCR requirement. You will need far less down and the qualifying for the loan will be based more on you.
pstoski@yahoo.com or 800 554-7362
Paul Sylvester, CCIM

Jul 22, 2009
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David A.
Lender/Mortgage Broker
Acworth, GA

Devall Capital Funding has a program for commercial investors that include the following parameters:
o Have decent credit (though credit is not the sole determining factor)
o The loan amount requested will be 50-65% LTV. This can be after construction completed but that is at the discretion of the banks’ in house appraiser.
o The borrower has at least 10% equity in the property or project already. If it is a new acquisition they will need to be able to place 10% down.
o A good exit strategy, usually meaning refinancing or selling.
o The borrower will have to demonstrate the ability to make the monthly payments without relying solely on the property they will be buying or refinancing with the loan. This proof typically comes in the form of tax returns or bank statements that demonstrate enough income or liquidity to service the debt.
If this sounds like something you would like to discuss further, please contact me at
dalmeida@devallcapitalfunding.net

Jul 23, 2009
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