Must Knows when Buying a Multi-Family

Must knows when buying a Multi-Family

In this video we will be talking about the must knows when it comes to buying a Multi-Family property.

(Jeff) Hey, it’s Jeff Chubb I am a retired investment banker turned real estate agent that has sold more then a 1,000 homes and am here with (Sammy) and I am Sammy Illiopoulos, I am one of the top 300 loan officers in the United States and work with Guaranteed Rate. 

All Massachusetts Multi-Family Properties For Sale

(Jeff) Buying a multi-family can be a really smart investment as it will generate rental income while also allowing you to build equity. 

(Sammy) But there are some things that you should consider and know before you jump into the multi-family game. 

(Jeff) Okay, Sammy. Tell me what I need to know from a financing standpoint when buying a multi-family property. 

(Sammy) You need at least 2 months of a cash reserve, but sometimes it can be as much as 6 months. Another factor that could make this vary is if someone has more than one property. 

(Jeff) Okay, talk to me about what you mean by a “cash reserve”.

(Sammy) A reserve requirement would be your mortgage payment that includes taxes and insurance. Some banks will require 2 months up to 6 months for each property that you own or will own. So if your Mortgage is $3,000 a month and the bank requires a 3 month reserve, then you would need to have $9,000 in additional funds over your down payment and closing costs. Again, it depends on the program.

(Jeff) So do you need to have the cash just sitting in a bank account at all times?

(Sammy) No, these can come in the form of 401ks, IRAs, stocks and checking and savings accounts. 

(Jeff) Okay, so a question we get all the time is if rent can be put towards income. 

(Sammy) Absolutely! 75% of the market rents or 75% of the current rent can be put towards income. If the property is currently rented, then most likely the bank would need to see that lease. 

(Jeff) That makes sense. Does that change at all depending on how much you are putting down? 

(Sammy) No it does not. It will always be 75% of the lower of the market or actual rents.  

(Jeff) Talk to me about financing and how the number of units affect it. 

(Sammy) The first thing is that anything over 4 units means that residential lending does not apply. If you are planning on living in one unit, then obviously you can not use the market rent for that unit in the income calculations. 

Another thing is that a lot of people will immediately jump to “I want a 4 unit property”. And this makes sense because there are more rent opportunities there. The issue becomes the more units you have, the harder it is to qualify for financing, especially when trying to put down lower down payments.  

(Jeff) Speaking of Downpayments. How much do I need to put down in order to buy a multi-family property? 

(Sammy) As a primary residence, you can go as little as 5%. As an investment property, you need to put 25% down. 

(Sammy) So Jeff, what are some other things that you must know when buying a Multi-Family property? 

(Jeff) Consider maintenance and repairs. When you own a multi-family property, you will have multiple units and systems to maintain. It’s going to be more time consuming and costly to maintain the property. This could be compared to an investment in a condo building where you pay a condo fee and then all the exterior maintenance is taken care of. 

(Jeff) Then there are tenant issues. Don’t get me wrong, no matter the investment… You have to deal with tenants. But in a multi-family you have to deal with the tenants meshing and getting along with one another. Sometimes it can be like being a parent. 

(Sammy) Another thing to consider is that Multi-Family properties tend to have higher up front costs. 

(Jeff) Unpack that one for me. What do you mean by higher up front costs?

(Sammy) Well they generally cost more. And if you have a 3-family that needs three new Kitchens to be ready to rent… Then that one is gonna cost you. 

(Jeff) Yes, that makes sense. And I can say with certainty that generally a multi-family property will cost more than a Single Family property. 

(Jeff) Along those lines of cost, another thing to consider is location. There may be some areas that really don’t have many multi-families as housing stock. 

(Sammy) Very true. I don’t think there are many Back Bay multi-family properties available. 

(Jeff) Ha, and if there is one… Bring the checkbook cause that one is gonna cost you. 

(Jeff) Here is one that you may find interesting… A homeowner who lives in a multi-family actually has the ability to discriminate against certain classes. Again, this is only a homeowner who is living in the property. And I can’t confirm this is for all states, but it is here in Massachusetts.

(Sammy) You are going to have to elaborate on that one a little bit. 

(Jeff) Agreed. First off, college students are not a protected class. So whether you live there or not, you do not have to rent to a college student. 

(Sammy) That is a big one in Beacon HIll. There are a lot of landlords who won’t rent out to Law Students because they don’t want to be their practice cases!

(Jeff) Exactly. When you live in a multi-family, you can actually discriminate against family status. If you live there, then you have the right to say no to young kids and the reason is that maybe you are older and don’t want to have to deal with screaming kids in the unit above you! 

(Jeff) I also want to say that job status is another one. You may not want someone who works late or off hours in your home. 

(Sammy) All the other ones still stand?

(Jeff) YES. Religion, Creed, Race, etc. All those still very much stand. I hate to say this cause not much is common sense when it comes to the government, but it goes along the lines of Common Sense. If you live in the property and it is your home, then you have rights to ensure that you will be able to find peace and tranquility in your home. 

(Sammy) Peace and tranquility, something you won’t find wIth young kids running around our houses!

(Jeff) NOPE. Sammy, I think we did it. Those are the things you should consider when buying an investment property. 

(Sammy) If you are thinking about making a move in Massachusetts, then be sure to reach out to this guy (pointing to Jeff). He is one of the top agents in the state and will take great care of you. I can’t begin to tell you how much experience matters and finding a quality agent will make the difference between a good experience and a miserable one. 

(Jeff) And if you are buying a home in MA or really anywhere in the country, then Sammy can help you! He works for the #2 lender in the country and is one of their top 10 brokers in the company. I have worked with a lot of mortgage brokers in the past… I say this, not because he is standing next to me… But he is the best in the business. You won’t regret reaching out to Sammy. 

(Jeff) Our contact info is below, so let us know if you have any questions and until next time!