Cash Flow
So you want to create passive rental income from Real Estate and you want to buy properties at a discount?! Well, why not focus on Multi-Family Short Sale or REOs as potential rental properties?
Multi-Family homes are the properties which have 2-4 units where the owner can occupy one unit and rent the rest to cover the mortgage. Mutli Family homes are ideal as investment properties since the rental income per door is higher than Single Family Rentals and the you can easily manage them with fewer property managers.
However majority of the units in these investment properties will require Small Kitchen or Small Bath Remodels. So, you need to take the rehab costs of these Multi Family Short Sales and REOs into consideration which we have written extensively about.
In this blog we will be focusing on the down payment requirements for purchasing Multi-Family Short Sales. As luck would have it our office is approved with many lenders who underwrite multi-family loans and specialize in them. One of these lenders is American WestBank which is offering 75% LTV loan programs for the purchase of mutli-Family units. They also offer low rates which is critical in reducing your debt service costs. This means that as an investor you will need to have 25% of the purchase price plus some closing costs available for you to purchase these units.
Keep in mind that if these units are already occupied, the lenders will ONLY give you credit for 70% of the rental income generated from these properties. The other 30% is not considered as available to you since the lenders are assuming that you will need those funds for Repairs and Vacancy requirements.
For example for a 30 due in 30 loan for 75% LTV loan starts are 4.6% and moves lower if you add more down payment. So, the trick is not to be able to figure out if you can cash flow these properties with this kind of financing.
But it all start with value and if you need help finding the value of the property that interest you, don’t hesitate to Contact Us.
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