Advice needed on buying a multiplex
Question: I am interested in buying a multiplex. It has 6 units and I have visited it already and is in decent shape. I am in Canada, so not sure if same as in USA, but banks will lend you only 75% on multiplexes if you do not occupy one of the units. I have the 25% to give, but I really wanted to buy 2-3 different buildings and splitting it as cash down on three rather than on one. Obviously I have not found the other two yet and prefer to take it one step at a time.
Is there anyway for me to get the bank to finance with 5-10% down? I am dealing directly with the seller with no agent, so not sure if I could be creative and benefit from that.
Any advice is greatly appreciated
Answer: Banks won’t extend that much credit, and for good reason. They don’t want to be dealing with the risk of having inexperienced and undercapitalized operators overleveraging themselves in the real estate market when there is a good potential that a year of recession could easily place a 5-10% loan underwater.
With a 5-10% down payment loan, you are most certain to pay a higher interest rate as well. If you are looking for diversification of real estate assets, why don’t you buy into a partnership or real estate investment trust instead of trying to do it all yourself, concentrating all of your risk in the same local economy? Anything beyond 75% and you are dealing with the rules of the mortgage insurance company.
Is there any way that the seller would take back a second mortgage? Use the bank for 75% and finance another 20% with the vendor? etc. Maybe, maybe not. But would the seller consider helping you out by taking back a 2nd mortgage of 15 to 20%?? Typicly you would write this as a 30 year loan with a clause that requires you to pay the full ammount due in 5 to 10 years.
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