I am in the process of purchasing a 4-unit in Dayton, OH and was told by three banks that I would need 25% down because it was more than 3 units. That sounds like it is being considered a commercial property (although my loan officer is not a commercial loan officer). The duplex I bought in Dayton a few months ago only needed 10% down. I was under the impression that 4-units and less did not qualify as commercial. Is Dayton or even Ohio under different rules? Or have the lending rules across the country changed due to the current climate.
Ohio is under the same rules. 1-4 units is considered residential for the purposes of lending if you are buying personally (as opposed to having your LLC buy it). For the purposes of the building code, in Ohio 1-3 units are considered residential, while 4 or more units is commercial.
I don’t think the 25% down has anything to do with the commercial or residential status of the loan. I bought 11 rentals in January and got 100% financing (less than 50% LTV) on a commercial loan. I think the issue is that the banks you are dealing with are becoming more cautious because of all the economic bad news.
Good Luck,
Mike
The 4-Unit was purchased last year for $82k and I got it for $35k from a very motivated seller that has to get out from underneath it (his on site Property Manager embezzled all the rents and never delivered them). I’m waiting for the appraisal, but I’m hoping for a great LTV. I tried to use that as a negotiating point for no down payment with all the loan officers. "Why should I put 25% down so you can have a 75% LTV, when the LTV is already better than 50% ? Unfortunately, all of them told me their policy is 25% of the purchase price or the appraised price, whichever is lower?
Is a commercial loan the only way for that argument to be valid?
Is a commercial loan the only way for that argument to be valid?
There is no argument. It’s their money and they can require whatever downpayment they want. On the other hand, there is a bank on every corner and I would suggest talking to the successful investors at your local REIA to see which banks they work with. As an alternative, you could buy the property and then refinance it in a few months to get your money back. No big deal.
Good Luck,
Mike