All real estate is not created equal, which means that before you make the transition between single-family properties and multifamily properties, it behooves you to understand the financing and credit requirements – as well as the changes in risk assessment. In the following, we’ll apprise you of general considerations for investment properties, which include cash flow required; net operating income, and capitalization rate metrics.
Traditional Financing Methods for Investment Properties
Since a multifamily residential property is dependent on the number of units it contains (in order to warrant the classification), you can still pursue the same conventional loans that you would pursue in the case of single-unit real estate. This includes government loans by way of the Federal housing Administration, as well as Veteran Affairs loans if you or your spouse served in the military. There’s also the option of bank loans and online lenders.
As you would expect, the loans need to be quite a bit larger for multifamily investment properties; this offset somewhat by the ability to diversify your risk (or perhaps, lessen your risk by diversifying the real estate in which you invest). The upside is that there are more lenders available due to the larger amount of money, because of the increased loan administration fees.
Unconventional Financing for Investment Properties
If, for whatever reason, the above financing methods do not appeal to you, then you can pursue the angel investor-equivalent for the real estate space: an equity share investor. This wealthy investor will funnel you the funds in exchange for equity in the property; clearly, this would not be a viable investment strategy for single-family residences. The equity share investor would be recompensed with a fraction of profits if you sell the property, or monthly payments (worked out beforehand, of course) based on the amount of cash flow available from rental receipts.
Another financing option is real estate syndication. Similar to the above, it consists of several investors contributing money to the venture. It can take the form of either a partnership or crowdfunding.
There are quite a few other options worth looking into, such as short-term multifamily loans. For a comprehensive understanding of the pros and cons, contact the experts at Sterling Capital Consulting.