Multi-family - formula?

Don't know about financing, but be advised that the tax rate on the 4 and 5 unit buildings in NYC is significantly higher than for a 1-3 family.

Check out http://www.nytimes.com/2005/02/20/realestate/20cov.html - be sure to read down to the end where it turns out it was the mortgage lender that wouldn't approve them without the the addition of the fourth unit that caused the debacle!

So maybe mortgage lenders aren't very good at figuring out how much multifamily you can afford.

I thought when the building is for 5 or more units, the tax status (and certain rules) changed. Can't recall where I read that. The NYT article above is pretty scary, though.

Thanks for the article. Still looking for a good rule-of-thumb for these situations. Will post if I find.

In the meantime, anyone else here have any experience with buying multi-family and figuring out the financials?

tandare, I think you have the right approach in terms of figuring out rent comps and estimating operating expenses. I played with this when I was looking to buy a multi-unit in Brooklyn and occupy one of the apts. You probably won't be cash-flow positive in most cases in the first year or so, and afterwards, the major variables are pretty obvious (rents, fuel, taxes). At least, that was what I found to be the case in the majority of properties for sale. In terms of what a bank will lend you, it may be best to approach them directly and see what their thinking is. I would think any experienced mortgage broker would have dealt with this kind of scenario at some point. Good luck!

We only consider 1-4 family as a residential property. 5 units and above are considered commercial. So it will depend on which youre looking to buy. In the case of a 4 family, we will use market rent or current leases and take 75% of the 3 units (since buyer will occupy one of the units). In the case where youre purchasing a 5 unit property the decision will be based on all the income in the building against all the expenses to determine a debt service ratio. And the approval is based on the building's net income as opposed to the 4 family being based in rental income plus salary income. You can email me offline for any specific scenarios. sunny_hong@countrywide.com

Sunny that is very helpful, thanks for the info. Do the metrics change if more than one buyer join together to buy a building? Or form a corporation to buy it? As you can guess we're exploring all options....

The metrics wont change purchasing a 5+ unit property under a corp. or llc. However, things can change if more than 1 unit is occupied by the purchasers.