Big Or Small Multiple Family Properties??
Hey Gang,
I'm new to this site, and think you are fabulous! Here's my question:
My credit is in the top range, and I have a few hundred thousand in equity in a commercial property I've owned for several years.
I'm considering cashing out that property to get access to the equity through a refinance, and using it to buy a large multiple family, like 8-15 units or so.
So I want to know if you all think my idea of going for a single large property is better than going for a few smaller 3-4 unit dwellings. (I've been looking for the smaller units for over a year, and can't find anything worth buying in my area - too overpriced.) I haven't looked into the larger property market here yet, but thought I'd ask you before I make any moves in that direction.
Also, can any of you recommend a reliable lender who might be willing to handle the whole refi-new purchase enchilada?
Thank you,
Marlene 
Unless you just want the cash, I would just cross collateralize the property you want with the property you already have. I personally choose to go where the money is. Based on that approach I will do MH Parks one month , apartments the next. Instead of selling one to get the other I would expand and diversify my investments to include all ranges so that if one startes to falter the other would pick it up.
Hope that helps,
Kyle
Kyle,
Thank you for the quick answer. I have been speaking with some local banks about refinancing my existing property so raise the capitol for a new property. Is that what you mean by cross-collateralize? Are there any special tips you have about doing this??
Thank you,
Marlene
Sometimes to get 100% financing on a property that has bad financials due to bad management I will use the equity in another property as leverage to get the loan. If you want to refi to pull the money you can do that as well, It depends on your interest on both deals. If you can get lower interest on the refinance then go for it. In my opinion, you are doing the right thing by diversifying your properties rather than putting all your eggs in one basket.
Good Luck,
Kyle
I learned that I can't refinance my commercial property because of my own bad management. I own an office bulding that was once a residence. I rent out the rooms of the house to 7 professionals, but the income of the property x10 only equals 1/2 of the residential value of the property.
So I can't get a reasonable rate on a loan for that property, or so it seems, because appraisers would not consider it a residence anymore. It has no more kitchen....
So I think I might need to go with cash from another source and forget about using the euity in this property.
I appreciate your advice about diversifying. I think that is a very good suggestion, and will definitely follow that advice. Thanks for your input.
Gratefully,
Marlene
If all else fails, dont forget you can use cross collateralization since you have been paying down on the loan, just have a review appraisal done by the same person that appraised it before. It usually costs me between 200-500 bucks. If you run ito any snags let me know, I have had to be quite creative on the last couple of deals, and my be able to help.
Good Luck,
Kyle
my $.02
Whatever you do, make sure you buy it right, get accurate numbers for your expenses, and make sure the numbers make sense.
That said, I'd opt for 12+ units.
Advantages of large vs. small properties:
-economy of scale (lower per unit costs)
-easier to get decent management/maintenance/etc
-easier to finance (5-10 units can be pretty tricky...it's a REALLY small commercial deal. Most commercial lenders like $500K and up.)
-higher cap rates (better ROI)
-less competition (but perhaps more savy)
Disadvantages
-"all your eggs in one basket (...at least at first)
-harder to sell (fewer buyers)
-can be more overwhelming initially
-negative cashflows will be a lot bigger
-bigger reserves recommended
Just my thoughts.
Now's a good time to get your property running more smoothly. If you can show 2 years of good financial performance they'll see the value in it and you'll have that option in a year or two.
I moved from San Diego about a year ago and had a lot of experience in the real estate market there. The problem in San Diego is that the market is like a hot air balloon. It's blown to the maximum expansion and could burst at the slightest prick of something sharp. I was managing properties from 95 through 02 and saw the "great depression" of 96 and then the expansion of 98 and on. Because of that, I saw a 100% increase in values on my properties from 97-01. If I were still in that market, I would be buying run down properties at deeply discounted prices and fix them to sell quickly and get my cash back out. I would look to own a property for no more that 8 - 10 months due to the questionable market values right now.
Good luck
Thanks for this last sugestion! My accountant just suggested I do the same - and not invest in anything to hold at this time. Flipping looks like the best strategy for San Diego right now.
I appreciate your taking the time to respond. It helps me have the confidence to keep moving forward.
Marlene
Thanks for this last sugestion! My accountant just suggested I do the same - and not invest in anything to hold at this time. Flipping looks like the best strategy for San Diego right now.
I appreciate your taking the time to respond. It helps me have the confidence to keep moving forward.
Marlene
II have a couple of friends that work in the mortgage business. They tell me that its very easy to get financing for 1-4 units. Anything above that, and you usually have to go to a specialist. The down payment on 1-4 units is usually a lot less then 5+ units. Having said that, you may be able to get better price $/unit if you go for more.