Multifamily investing refers to purchasing multifamily properties that offer several spaces for rent such as condo buildings, apartment complexes and housing complexes. Investing in a multifamily property can create a steady cash flow. As a novice, you should explore all multifamily financing options and select a suitable lender to help you get through the entire process seamlessly.
Why Should You Invest in a Multifamily Property?
There are various advantages to investing in multifamily properties that offer many rentable spaces. Here’s why you should consider investing in multifamily properties:
Easier to Finance
Costs associated with multifamily homes will be significantly higher than single-family units in most cases. Single-unit properties may require an investment of as little as $30,000, whereas multifamily units may cost an investor millions. Many believe that securing a loan for a single-unit property may be easier than getting a loan for a multifamily property due to lesser mortgage amounts, but multifamily financing is more likely to receive faster approval from banks and financial institutions than single-family units.
Investing in multifamily units helps generate a reliable cash flow every month and holds even if some remain vacant or when some tenants pay their rent past the due date. Since there are multiple spaces for rent, even if a couple of tenants leave or default in paying the rent, the owner keeps getting cash flow from other tenants. Whereas in a single-unit property, if the tenant leaves, it becomes completely vacant, and the owner does not get any cash flow. The possibility of a foreclosure in a multifamily unit is less than in single-family units. These factors make the investment in a multifamily property less risky and help the borrower get a competitive interest rate from the lending institution.
Portfolio Investment
A multifamily unit is ideal for investors who wish to expand their portfolio and diversify their rental units. If an investor purchases ten different single-family units, he will have to coordinate with ten separate sellers and managing these properties would become cumbersome. Whereas multifamily units help the investors effectively manage the multiple rental units at one location and save time and effort.
Real estate portfolio investment in well-diversified holdings helps minimize the risk during challenging economic situations. Expanding your investment portfolio can also help you maximize your upside during favorable economic opportunities.
Favorable Timing
Multifamily units can be a rewarding investment as it helps create steady cash flow and is easier to finance. If you come across a lucrative opportunity to invest in a multifamily property that feels too good to pass, conduct a thorough analysis before advancing with the purchase.
Multifamily properties can be ideal if you are in a position to hire a property manager. Many investors don’t enjoy handling the tenants, so they hire a property manager to manage the daily operations of their rentals. A property manager is responsible for various tasks such as searching and screening the tenants, collecting rents, maintaining the property, managing evictions and handling the grievances.
Qualifying for a Multifamily Loan
If you’re considering investing in multifamily properties, you should learn in-depth about the requirements for getting multifamily mortgages. You will need to decide the type of loan according to your business type and property. And then decide the lender. Most lenders will access your request for multifamily loans based on three aspects:
Finances and Credit
Before approving your loans for multifamily properties, lenders will assess your finances to analyze whether you can afford this investment. Unlike residential mortgages, rarely are you required to show your personal tax returns to get an investment loan. Lenders assess your finances by looking at our personal financial statement as well as your credit score. Lending institutions need to ensure that the property that you are purchasing has stable cash flows and verify that this investment is a financially viable option for you.
Property Characteristics
The property acts as collateral for the loan amount. If the payer fails to repay the loan amount on time, the lender can seize the property. Assessing the property characteristics helps lenders verify the actual value of the property.
Capacity to Pay Down Payments
It is essential to be aware of the down payments before applying for multifamily mortgages. Multifamily properties often have higher down payments as compared to single-family units due to larger mortgage amounts. The minimum down payment for a multifamily property is 20%.
The lending experts at Hasanov Capital can help you access great loan options with maximum flexibility to ensure a smooth and swift process.
Types of Multifamily Loans
When it comes to multifamily financing, you have several options. Let’s explore these options in detail:
Conventional Loans
Conventional loans refer to permanent loans raised from traditional banks and financial lending organizations with a term of 15-30 years. Also, conventional loans for multifamily properties require a down payment of 20-25% and a credit score starting at 620.
These loans are typically easier to qualify for than government-backed loans and are recourse. The significant advantage of getting conventional loans over other loans is they offer lower loan amounts with loans starting at $500,000, and you can get construction financing for new developments.
FHA and VA loans
Government-backed multifamily loans can be used to purchase multifamily properties. These loans are backed by the Department of Veterans Affairs (VA) or the Federal Housing Administration (FHA) and sponsored by Fannie Mae and Freddie Mac. These loans are suitable for owners who wish to reside in one unit and rent the other units. Fannie Mae offers several financing programs, including long-term and short-term financing options. The VA loan is only available for former and active-duty service members and does not require a minimum credit score and down payment.
Short-term Multifamily Mortgages
These are a form of nonpermanent multifamily loans, including both bridge loans and hard money loans. Short-term multifamily loans are suitable for those who wish to renovate, season, or increase occupancy. Pricing for multifamily units is risk-based. Better the transaction stability for the lender, better the pricing for the borrowers.
It’s crucial to understand and explore the multifamily financing options and select a suitable option after a thorough evaluation. Our dedicated team of experienced financial advisors can help you seamlessly navigate through the multifamily loans process. With our expertise, you can get reliable and quick solutions that best match your requirements and background.
Consult our loan specialist today and get a free quote.
