Multifamily Property: What You Need to Know About Financing Them

If you’re considering buying a multifamily property, it’s important to understand that financing programs can differ based on the type of property, rehab needed and investor experience.

A multi-family property, defined as having five or more units, may require a different type of lender than a 1-4 family lender. Multifamily lenders use underwriting criteria specific to 5+ unit properties that focus on appraised value, rental cash flow and occupancy. Typically, 5+ commercial mortgages are available through specialty lenders.

Several federal agencies offer loan guarantee programs designed to support multifamily property investments and development. Eligible properties range from small multifamily apartments (Freddie Mac, Fannie Mae, FHA) to large nursing home facilities (HUD). The specialty lenders can structure loans that meet the agency requirements which lead to low interest rates and relatively long maturities and amortization schedules.

Advantages of Owner-occupied Multifamily Properties

Multifamily property investors seek value in one of three ways: 1) buying a property in need of renovation and selling at a higher price; 2) buying a stable property for the rental cash flow it generates; this cash flow can supplement other income streams; or 3) some experienced developers find value in ground up construction in areas with inadequate levels of multifamily apartment buildings.

 

Considerations for Buying a Multifamily Property

When considering a multifamily home as an investment, you have the choice of using the property strictly for its recurring income coupled with whatever appreciation in value the property may realize — or you might choose to live in one of the units. Living in one of the units will reduce the amount of potential income the property can yield because one unit is unavailable, but this structure also reduces your own housing costs and places you on-site. There are also some additional advantages to living on premises.

Some investors have focused on the 1-4 family investment market and are looking to expand into larger projects. Multifamily investment and development can be a great next step.

Financing Options are Numerous

A wide range of lenders provide financing for multifamily properties. Some specialize in properties under $1 million, some focus on larger deals, some only handle agency loans, and some specialize in bridge lending. Certain lenders only deal with the most experienced developers and investors while other lenders are open to newer investors and developers.

Talk to an Experienced Lender

The various options can be hard to identify and can be confusing when you find them. Speritas Capital Partners can walk you through the financing process and help you understand the advantages or disadvantages of different loan structures and lenders so you can choose a multi-family financing solution that meets your needs. Contact us today for a free consultation today.

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