Mortgage for a 6 family property

The first thing you want to do is incorporate (set up an LLC). This will help you CYA in the realm of liability not to mention a few other things.

As part of the mortgage approval process they will likely request an appraisal, which will be used to determine the profitability/feasibility of operating the building as a business. If this comes out in your favor, this will help tremendously in the eyes of the loan officer.

I will add that I am an appraiser by trade and not a loan officer or a lawyer so others might be able to improve on my advice in those regards. I see appraisals on properties like this in our office all the time and they are pretty straightforward.

How much cash do you have to invest in the venture?

Sounds like a long shot but I wish you good luck.

Thanks for the luck. Funny enough, I just incorporated (S-Corp) my photography business about a week ago. Does this do the same job as the LLC in this case? How does this figure into the process of getting a mortgage? I am a bit confused, I thought I needed to be pre-approved for the mortgage before I even offer to buy the house, which would then lead to the appraisal? Is that correct? Also, what is a CYA?

Oh - about the cash on hand. Very little. But I think I can find a way to get about 10%. If I have to I will try to find 20%.

CYA = Cover Your Butt

Given that you said the property is in need of an "overhaul" you are going to have some serious challenges getting a bank to finance the purchase.

Spend $600 and get the property appraised. If it worth significantly more then what the estate will sell it to you then keep going down this road...otherwise run away.

(OP #1 - Don't take offense to the following remarks they are not directed at you)

The problem you have is you came to this board for advice. It's filled with people who know so little they can't even be called amateurs. Most of the advice you will get hear is bad advice. People in this forum would rather piss off a good commercial broker who knows how to swing a tough deal. They would rather haggle over an small application fee on a million dollar deal than have it go to closing . They have no clue what it takes to fund a commercial deal, though they will all brag about their stock market portfolios and supposed market expertise (none of them mention the money they lose). Another reason you wont get an answer here is most people here aren't interested in managing apartment buildings, they are more interested in that fantasy penthouse in the sky. Their main concern is figuring out how to impress the co-op board with their plummeting liquid portfolios then they are in the the nitty gritty aspects of apartment management.

On to some practical advice:

Most commercial financing (anything over 4 families is considered commercial) requires at least 25% down, although there may be a bank out there that will require only 20%, though that would be very rare. With the rise in gross rental multipliers in the past 6 or 7 years banks have become much stringent ( You hear that, the rest of you dumbasses, price to rent ratios have gone so high, that commercial banks have tightened financing a great deal........ despite what you idiot market hypsters say.) Some wont even look at the deal if you have less than 35% down. The second problem is, commercial appraisals tend to be tougher than regular residential and the banks that say they require lower down payments will probably lowball the appraisal. It may be worth 950k, but don't be surprised when the appraisal comes back for 850k. Your best bet is to find a good commercial broker who will try his best to shop the deal around, despite all the anti-broker rhetoric you hear on this board.

#7 Here again:

Here is a lender that may do what you are looking for, though they probably require a larger down payment

http://www.interbay.com/

#1-- Commercial lenders require 25% down in cash so you'll need $237500 down. I went with WaMu--25% down. Be wary of any lender or mortgage broker who tells you otherwise.

#7-- what are you the fucking oracle of wisdom?

#7 what kind of broker are you advocating the use of? Also, how would a bank lowball the appraisal? They don't do them, we do, and the numbers come in where they come in.

I wouldn't have phrased it quite the way #7 did, but he is 100% correct at the frequency with which appraissals of commercial property come in quite significantly below market value.
The discrepancy can be enormous.

and also #10, appraisals of commercial property are hardly an exact science, and different valuation models can be used to best attain the desired result

#11,12

I have no doubts that the value could come in low or high. I suppose I was insulted by #7 insinuating that appraisal shops give the banks whatever number they want to hear. #12, there certainly are more than one valuation model, which is why we try to present every one that is applicable to the site/property being appraised. If you are not an appraiser (I am) then STFU.

For those of you in this thread who are insulted, relax, I was speaking very broadly about what I generally read on this board. You can smell the anti-broker comments coming right around the corner.

#9 - no, I am not an oracle of wisdom, but the basics of commercial financing like the amount of money you typically need are not great gems of wisdom....... yet many of the "experts" on this board will jump in a thread like this with all the wrongs answers. I have seen many threads on Streeteasy where someone whines about a 300 dollar application fee, not stepping back and taking a look at the big picture, which is a lot of loans are not easy things to do. A good mortgage broker is very valuable when you are trying to swing a tough deal. If people here want to piss them off with penny-pinching wrangling....... o well, go elsewhere and shop bank to bank by yourself, see how much time and money that wastes you, if you can make sense of the process at all.

#13 - Dont be insulted by the insinuations because banks pressure appraisers all the time..... if you happen to work at a place where that doesn't happen, consider it rare or yourself lucky. I can see how an appraiser working on one end of the business may not see the other things that happen on the banking side. What usually will happen if you dont like doing things the bank's way is the commercial manager will keep shopping appraisers until he finds one who does. Many banks also have in house appraisers, not all of it is sourced out.

To the OP, these are just discussions about common practices in the commercial finance arena, they may not necessarily happen in your case.

Why would banks pressure the appraisers, I am not following. Remember, first time buyer here. Can someone explain why this would be so?