I was planning on getting a 4 unit apartment, and was under the impression (and still am) that it wouldn’t be a very hard thing to find very low (<5%) down payments on my mortgage, considering it will be owner occupied (also my fiance and i have great credit, mid 700’s).
however, I have recently been thinking that I would like closer to 7 units, and am worried I will not, despite being owner-occupied, be able to find low down payments on it.
Is there a magical number of units where it goes from low down payments (<5%) to high payments? the person i was talking to (who owns a couple apartments, but seems kind of clueless when he talks) said that after 4 units it will be a commercial property and i’ll need closer to 20% down, despite whether I intend to live there or not.
The magic number is basically 4 units. Anything over is considered commercial no matter if you live there or not. Once you cross over into commercial, everything is different than residential.
If you want 7 units, the best way to do it is to buy a 4 unit owner occupied and then buy another 3 or 4 unit as an investment property. You can still do a low down payment with an investment property, but of course the interest rates are higher. Most commerical loans do require 20-25% for a downpayment and you qualify for them based on the income from the property.
how much of a low down payment can you get on a commercial property, if i were to still want 7 units in one building?
also, i really like your idea of just doing two separate ones, that is a definite consideration.
on average, if bought at a good price, what is a rough amount of paying units to cover 1 unpaying unit. i know this varies wildly, and may be that no one can give a rough answer, but should i expect that in a 4 unit, i won’t have to pay for my unit, assuming i paid in the area of 80% appraised value for the property? if this is too vague for even guesses or opinions that’s okay
It depends on if you are going stated or full doc, but stated min down would be 10% and full doc would be min 5% both with seller 2nd. So now you are looking at 90-95% CLTV. So if your seller is willing to hold a 20% 2nd you can pay as little as 5-10% down which is very good. You can purchase 2 seperate properties 3 & 4 units but why when you can get the same or a better deal buying 7-8 at one time under 1 property.
Let’s compare apples to apples. Most sellers aren’t savvy enough to want to do a seller second. And then let’s talk about the terms of a commercial loan. What’s the interest rate difference between a commercial and a residential loan? Also lots of banks won’t do a commerical loan if it’s under $500k. I think the terms are also different, not sure you can get a conventional 30 year with a commerical loan. The loan periods are usually shorter. Some banks also like to hit you up with a 5k loan application fee no matter if you get the loan or not. Just haven’t seen too many good commerical loan products out there though I suppose they’re probably out there.
As for number of units and all that, again it boils down to two different games. When there’s more than 4 units, price appreciation probably isn’t going to be there as much as a 4 units or less because financing is much easier with residential owner occupied. On the flip side, you do pay less and the property should cash flow better. You just have to pick what you want to do.
As far as application or commitment fees, we don’t have ANY. And we do have terms of 15, 20, & 30 yrs just as residential products do; many people are not educated on what programs are being offered for commercial properties so they listen to others that don’t know either. Many banks are not willing to look at a loan if it is under $1M depending upon the size of the population, but we provide loans from $100K - $1.5M all day everyday. If the person has the right score, property and LTV we can do the loan.
wait you mean you pay less and get better cash flow on commercial ones? do you mean less / unit?
and seller carryback isn’t an option, i’m going to be moving to the area looking for the property that i will live in. restricting my search to properties whose owner will carryback is too much of a set back to my search
Yes, you pay less on a per unit basis, but your financing costs are a lot higher. When you finally figure it out, it’s probably better on the commercial side, it’s just that most people don’t have the money for the down payment requirements of a commercial deal. There’s a mortgage office next door to us and I just checked the rate sheet for one commercial lender. The interest rate starts to go up the higher the LTV is so when you’re at 90%, you’re paying 1.5% more than if you were at 65%. This lender does loans from 100k-1.5 million also, but their longest fixed rate term is 7 years and the interest rate is about 1.5-2% higher than a residential loan.
It’s just easier to get financing on a 3-4 unit property so they’re worth more.
Mr. Lawson is right regarding local banks. Henry the Massachusetts guy is also on the ball here. I also recommend local banks, or, following up with me. I originated a deal like yours last month for a delighted client in Florida and also one last February in Missouri.
Good luck and God Bless!
i don’t want to soudn disrespectful, but please no more offers on this thread. i’m not going to do business with someone i meet on a message board, i’m trying to get general ideas on what to do, not offers for whatever particular plans everyone has to offer me.
(i’m down to see what you have to offer me if you link me to your company’s page. I keep getting these offers in almost every thread i post in, and it’s always an email like 'johndoe@yahoo or hotmail.com; that’s not very reassuring)
thanks for the clarifications henry. that makes more sense. my cost / unit will be lower on commercial properties, but once you factor in the higher interest%, and the seriously shorter amortization period, the cost / unit / month rises dramatically, which would hurt my cash flow. am i on point so far?
also, my return on investment woudl be much lower, because i woudl have so much more out of pocket this way (still on point?).
and lastly, if the loans are so short, how do you get a building to cash flow? i mean unless i’m missing somethign, if you had + cash flow from your apartment building (let’s say 20 units), you wouldn’t have to put in any of your own money (on a monthly basis, you would still pay closing/down payment monies), and the loan woudl be over in 7 years, adn then you’d own it free and clear. now i KNOW i’m missing something
Well, Mr. “Deity”, may I and many of us suggest that you correspond directly with the people you wish to soak for their free expertise, rather than whine and moan about “solicitations” in a message board. Mine was simply an agreement with two previous repliers as well as my offer to look into it for you. I and many other industry insiders that participate in these forums are far too busy and frankly, too successful to do your brain work for you for free, thank you very much. Now, if these replies WERE solicitations, they would have been kicked by the mods, as they always are. Now, as I said,
I was under the impression that this is a free forum, so don’t get upset that people want to get on here and soak up free expertise.
I am not even close to getting this place. I’m 7 months out. I am trying to get ideas of what types of properties I are in my range, to do further studying on.
I’m sorry I offended you, it’s just that i’ve got like 10 posts in this place and hvae gotten half as many offers for some kind of service so far. I’m new here and didn’t realize it was the norm; my bad.
Sir, it’s all good. And believe me, I was not “upset”. As I said, and I stand by it, I’m too busy. There’s simply no time in this life or business to be “upset”. It’s just that you needed to be corrected regarding the protocol. While this is a forum for the exchange of information and advice, it is also heavily used for networking, referrals and the exchange of contacts for the portential for future business growth and prosperity among industry insiders. So, I maintain that this is not a place to be whining about numerous offers for assistance or the request for contact or such. And furthermore (and hopefully, finally), you phrased your grief in a very condascending manner as if you would never do business with someone you met in a chat or message board, as if we’re a bunch of scheisters or sleezies. Yet, we’re good enough to soak for free info. That’s all. I trust this concludes this matter and any further correspondence, should you choose, may be sent to my email address which is listed on my profile and kept off the message boards. Thanks, and once again, good luck and God Bless!
i didn’t mean to be so condescending, i’m glad we are both mature enough that this thread won’t disintegrate over something dumb. enough on that stuff (my condescending wasn’t really aimed at you in particular, now that i look at your sig i see it was aimed at people opposite you who don’t seem to be representing any real company and have like 4 posts, you seem 100% legit. i’m still just not ready to even think about any commitments yet, i’m anal over studying, almost analysis paralysis but i can get away with it because i’m still in college so i have time to do this)
henry, if you’re still with us perhaps you could shed some light on this last issue i had:
Actually the amortization period is the same as residential. They have 15, 20 and 30 year periods. It’s just that the interest rate isn’t fixed for the whole period, the highest one bank had was 7 years fixed and then it floats after that. I think you’re just supposed to refinance if the rates really went up as some of them are tied to the prime (currently 8%) plus a certain amount, between .75-2.75 points so you could be at 10.75 today if fixed period just expired.
Basically with commercial, there’s higher downpayment requirements and higher interest rates. Residential has more options to buy with low downpayment. On the other hand, the cap rates are usually better on commercial deals. Cash flow should still be good because you have the standard amortization periods as residential.