Multifamily Financing - Rates and what can you use as a down payment?

[balbas662]

I have been looking to to purchasing either a four-plex or a six-plex in Surrey, BC. I have heard once you go to 6 + units it is considered commercial and you can use the income from the building to qualify for the financing.



I have heard commercial rates are higher and also lower then regular rates, which is true? Assuming you use CHMC financing.



15% down is something else I am hearing if you use CHMC, is that true? Also does it have to be all cash or can you use a secured line of credit for the down payment as well?



Any help would be appreciated, thanks in advance.

 

[Thomas Beyer]

Commercial underwriting is based on cash-flow using debt coverage analysis. Frequenty the mortgage a bank would grant is 75% of purchase price or less. 85% is theoretically possible today but rarely happens. Mortgage rates are priced as an offset of about 0.8 to 1.3% over the 5 year Government of Canada bond rate, similar to 5 year single family residential mortgages. Thus, today as of June 2011 a mortgage in the low to mid 3% range is obtainable .. Sightly LOWER than residential mortgages.

 

[grahamdhogg]

Please excuse an amateur question, but is it not possible to arrange 100% financing for smaller multi-family buildings, say a four-plex? I'm starting to plan for my first real investment purchase (I already own a rental townhouse) but I don't have much in the way of spare cash. I live in Ottawa.



Thanks,

Graham

 

[2ndstory]

Not in my experience. 20% down.



Nik

 

[housingrental]

Graham - No

 

[grahamdhogg]

Can I get the 20% from HELOC or another borrowed source?



Graham

 

[2ndstory]

You can get it from a HELOC. It has to be secured funds. Cannot use a regular line of credit. If you've sold another property and the timing is such that the funds from that sale will be available by possession date, you can do that too.



Nik

 

[Thomas Beyer]

Generally, a multiplex is held in a corporation. Cash comes into this corporation via a shareholder loan usually. Most banks want to see your or the major shareholder's of the corporations net worth. The bank usually wants to see 25% of the loan amount in net worth.

 

[bizaro86]

[quote user=ThomasBeyer]The bank usually wants to see 25% of the loan amount in net worth.



Does the 25% usually need to be liquid net worth or does real estate equity count?



Regards,



Michael

 

[ChrisDavies]

Equity counts - they're just looking for the number at the bottom of the page of your net worth statement. If it's tight or they're otherwise feeling concerned they might question the value of the assets reported.