Multi-Family Homes as Investment Properties

The Multi-Family or Plex loan is similar in many ways to a single family loan, but with some significant differences to consider. For our discussion we will be talking about single family residences, duplexes, tri-plexes or four-plexes. Anything larger than a 4 plex places you into commercial loan status. The strength of a 2 - 4 plex loan is that these loans are mostly focused on YOU, unlike a commercial property loan that is mainly focused on the property.  Generally, a commercial loan needs a much larger down payment and the property itself can be much more difficult to sell in times of higher interest rates.  Commercial loans must cash flow for the lenders and single family 2-4 plex loans do not necessarily have to cash flow. Enough said about that. Here is a brief list of some of the differences between;

  2 - 4 unit investment, non-owner occupied, plex loans and non-owner occupied single family residence loans.
• Rates are most often higher for plex loans.
• In general you will need more of a down payment.
• Allowable; negotiated seller contributions to the closing costs are less.
• The field of lenders who will accept a low down payment for a plex narrows dramatically.
• Most lenders will not allow anything less than a 20 - 25% down payment, but there may be access to 10% down loans for 1 & 2 unit properties.
• The terms and conditions of a loan become more stringent as the number of financed units increases. Both the complexity & interest rate may increase as you move from a non-owner occupied single family duplex, and the financing of tri-plexes and four-plexes.
• Appraisals are more detailed and thus cost more.
• With more than one unit, expect more lender required repairs in order to get the loan funded. For instance, a 4-plex has four of everything, like bathrooms and kitchens with four times the potential for problems.
• Plex loans are more complicated and thus can take a bit longer to close.

Warning! Choose your lender and realtor carefully with a plex purchase. There are not many specialists in this avenue of real estate acquisition. Most will say that they are familiar with the multi-family issues, but few have the experience. Try to avoid mistakes here, Believe it or not, rates are not the only issue that should concern you when purchasing an owner occupied or a non-owner occupied property.  It should be the complete packaged final program.

A Helpful list for Multi-Family Dwelling Owners