Expert: Brian Bocchieri - 2/18/2009

Question
I'm looking into being a landlord, i own a good business but want to move into the rental market. my question, the property's i'm looking into are for sale less than market value, actually a customer wants to sell me several homes, all rented by sec. 8, each homes rental income more than covers the potential loan, i personally don't have the money to put up (realtor says 10-15%), why if the rent covers the loan + do i have to put $ down? anyway around it? Govt. help? I can bring in partners either with $ or a-1 credit but that defeats my plan, any advice would be helpful this is my chance, I don't want to let it get away.

Answer
Hello Robert;

This is the problem that happens in the residential market.  In the true commercial arena the property stands on it's own.  Meaning the cash flow of the property is what qualifies for the loan itself and you as the buyer are looked at as the secondary source.  This is the total opposite in the residential market.  In fact the FHA for a while had limited the amount of loans you can have (residential) to a maximum of 4.  This has been repealed I think coming in March 09.  

A commercial property (multi family) is 5 or more apartments or units in the same building.  This type of property qualifies for commercial funding.  You will still require money down and please don't get sucked into the no money down deals in most cases you become over leveraged on such deals which can cause major problems.  Can it be done yes,  can it be done in this environment,   with seller financing yes,   with bank financing most likely not.

For the type of deal you are attempting to put together your best bet is with partners with a higher down payment you can get better terms and your cash flow will only improve.  Work with your partners to pay them a reasonable return (much better then they can get in the bank)  and you can manage the property for a fee.  You can set up the ownership so that you are the majority owner you can then share in the profits plus you get the management fee.
By setting up the deal in this way you can at a later time refinance the property,  pay off the partner and you then own the property.  You can then do it again with the investor over and over again in order to build your holdings.  

I hope this has helped it is a very short lesson on a complex problem.  
should you require additional help feel free to contact me again,

Wishing you all the best

Brian Bocchieri