Would I need commercial financing for this?

[The DC Group]

To start my investing career I plan on purchasing SFH's and later moving on to small residential buildings (2-4 units) for passive income purposes. 

I met with a mortgage specialist today and she mentioned that if I plan on purchasing more than 3-4 properties per year I will need commercial financing. 

Is this the norm when purchasing more than 3-4 properties per year to hold them as rentals? 

Approximately, how many properties is one able to finance using residential mortgages? 

[71tr]

Anything up to four units is considered single family.  Loans are typed by the underlying security property and underwritten individually.  All banks record their loan portfolios in standardized fashion.  Single family (1-4 units), multi family (5+ units), commercial real estate (strip center, office bldg etc.). 

[The DC Group]

I think you misunderstood the question.  I was speaking in terms of separate properties, not separate units.  I do understand that 5+ units in one property would be considered commercial.

What I was referring to is how many separate properties is one able to acquire and finance using traditional residential mortgages (not commercial financing)?

[butlersw3]

From my experiences, not exactly.  Theoretically, each purchase of a SFH has no bearing on another and there should be no limit to the number of transactions you can do.  Some lenders will restrict the number of loans they will do for an individual to 4, 5, or 10.  All this means is that you will have to shop different lenders to purchase and hold 3-4 SFH properties per year. 

Now, I believe you can take 3-4 separate mortgages and combine them into a single commercial loan, but I have not done this and do not know if it makes sense.  I would imagine that commercial rates are higher..

[The DC Group]

I beleive the interest is generally higher with commercial mortgages. That is exactly why I would like to know if I would be able to finance several properties (SFH's, deplexes, etc) per year with residential mortgages.

Can anyone clarify this?

[big-fat-cow]

Clarifying: yes you can.

[christopher w]

No. Purchasing more than 3-4 residential homes will not force you to use commercial financing. Sounds to me like you may want to shop around for a new broker who understands investment purchases and how to structure them to allow for maximum purchasing power. Hope this helps.

[The DC Group]

Are you able to use residential mortgages if purchasing homes/2-4 unit properties in an LLC?

[71tr]

DC, yes to your question.  By definition a property with 1-4 units is considered residential single family.  Five or more units becomes multi-family.  It does not matter if you borrow personally or thru an LLC, the property type and hence loan type remains the same.

[JeffInCT]

Another vote for no to commercial mortgages. Guideline - You get a commercial mortgage for a commercial property or residential 5+units. You get a conventional residential mortgage for residential prop condos, or 1-4 fam.  Once you hit 10 conventional mortgages you may have a problem with number 11.

[Jasondt2001]

Another vote for no to commercial mortgages. Guideline - You get a commercial mortgage for a commercial property or residential 5+units. You get a conventional residential mortgage for residential prop condos, or 1-4 fam.  Once you hit 10 conventional mortgages you may have a problem with number 11.

What is a good solution for number 11? I do plan on going above that one day... How do you get around it or what do you do to keep your business profitable by aquiring new rental units?