Let’s take a look at lending for two to four family units.
René Nelson, Eugene commercial real estate broker
Marcia Edwards, Eugene residential real estate broker
Marcia Edwards: We’ve been talking about the opportunities out there in changing what you have invested in, in a different way. Taking another look at what your investments are now, and what you’d like them to be long-term.
René Nelson: So Marcia, let’s talk about two to four family units, duplexes, triplexes fourplexes, because you and I talked as we were coming into the radio station today that we’re seeing some transactions that are happening off-market, but we also know that a lot of people are not paying 100% cash for those. They have to go get financing. So if someone wants to buy a duplex or a fourplex, talk to me about financing. Where do you send them, and what do they need to do?
Marcia Edwards: Well, I send them to Ladelle White and Guild Mortgage, and what we talk about to them early, is that it’s going to be a 25% down payment right now, plus reserves are required through Fannie Mae. Now the reserve account depends on the risk threshold of the units themselves.
For example, owner occupancy, doesn’t play this game. So if you’re going to move into one of the two to four units, that’s a different conversation. But two to four units is still standard financing. You’re going to see similar requirements in lending to what you’d see otherwise in single family.
René Nelson: Okay. And talk to me about gross rent multipliers. Okay. I come to you, and I say, “Marcia, I want to buy a four unit property, I want to buy a fourplex. How do you help me figure out the value?”
Marcia Edwards: Well, you’ve got to look at it in several directions. A lot of people look at cash flow, simply. They look at the down payment, they’re looking at that as the money that they’ve set aside for investing, and that is the money that they’re going to get the return on, because is that’s a cash-on-cash return. That’s a simple way to look at it. Also, you’re talking about the gross rent multiplier, which is also your world.
In regards to that, you’re looking at what is the value that you want to get out of the property each month? And that is an index that we use in our industry to make sure that you’re not overpaying for the property with a lesser return than what the market trends are.q
René Nelson: Because that will also have an impact, if you have to get an appraisal for a lender. Then if the property does a new appraise, because you’re overpaying for it, then you’ve got an issue, and your deal could fall apart.
Marcia Edwards: Exactly. So you’ve got to make sure it makes sense. The lender’s protecting themselves, not you, but it is a by-product of that, that protects you as well, that you’re not investing upside down.
René Nelson: Okay, great. So on the next show, let’s go back and finish talking about the case study of our client, and then let’s talk about stats and market trends, and what’s happening with pricing.
Marcia Edwards: It’s going to make you smart. Join us.
Join Eugene, Oregon, real estate experts: Bob Nelson, Real Estate Investment Broker with Pacwest Real Estate Investments, and Marcia Edwards, Residential Real Estate Broker with Windermere Real Estate, daily at 5:30pm on KPNW for the “Real Estate Today” radio show.