How You Go About Putting A Deal Together On Multifamily
I'm curious to know how you go about get financing on a multifamily unit. I've been looking at multifamily units ranging from $300k - $600k and just wondered when you are seeking financing on something like that do you need money down? do you set it up showing cash flow on units vs. mortgage? is your personal credit the main driving factor? etc. What does financing look like on a multiunit versus a single family dwelling. Any info would be appreciated. Note: I'm not looking for any financing here..just the steps to take. Thanks.
This is an excellent range to work in. Too small for the really big companies to work (they like 100 units) but big enough to scare off the average weekend warrior.
They would like to see 20% down. But unlike SFR's they won't care as much where the 20% comes from. Seller second? bring in an investor? These are perfectly acceptable.
The lender will want at least a 1.2 to 1.25 Debt coverage ratio. In other words, after all operating expenses are paid the net operating income should exceed the mortgage payment by a factor of at least 1.2/1
Personal credit is less important but not unimportant.
When financing a house the lenders look to you-- how will you pay them back? But when financing an apartment complex they know you don't have enough cash to pay them back they are expecting to get repaid primarily from the cash flow of the property. So underwriting is much more about the property than you.
If the property has over 5 units it will be rquire a Commercial Loan, most banks will require some amount as a down payment normally 20/25%. Rates could be slightly higher than a residential loan but always. When looking at a property, banks will look at Effective Gross Income less Operating expenses = Net Operating Income (NOI). If the property has a great NOI to cover Debt service you should be fine. Having a great credit score won't either. The question that you need to answer is will the building stand on it's own. And provide cash flow. Good Luck
commercialking and onarom, thank you both very much for your quick and extremely informative replies.
I am already plugging numbers based on your information and hope to be putting some offers together soon.
You've both been excitingly helpful. Thank you both sincerely,
Bill White
commercialking - where do you get a bank that doesn't mind a seller second for part or all of the 20-25% equity required to back their 75-80 LTV? Any bank I've ever dealt with doesn't want seconds/'silent' seconds. PM me if you want