Financing Multifamily Property

Financing Multifamily Property

When it comes to financing multifamily property investments, you’ll find that not all lending is the same. The difference of one unit can be significant in terms of getting the type of program that fits your budget. Your down payment may be significantly higher and your credit score even more important when the investment property you want contains more units.

Here are a few tips when searching for the right financing to purchase a rental property. The more you search beforehand, the better the chances of finding the right deal that meets your needs.

Large Down Payment

One significant difference between financing a single-family home and a multiple family property is the down payment. Thanks to government programs, you can find down payment opportunities for as little as 1% on single family homes. However, they do not cover multifamily properties as they are considered investments. Regardless of your credit score, you can expect to pay at least 20% down for the purchase. For larger properties, 25% down payment is not uncommon, so be prepared to put down some significant cash to get the property.

Good Credit Score

A good credit score helps with lots of things, but today it is more important than ever when it comes to investment properties. Because of the Housing Crisis of 2008, getting a loan is now more difficult than ever and your credit score will need to be at least 700 to 720 if you want consideration from banks and lenders. Your credit score will also need to be clean of any mortgage defaults and any issue that might cause a lender to think twice.

The 75% Rule

Keep in mind that lenders will loan you the necessary money based on a 75% occupancy rate, not 100%. Very few properties are fully occupied and lenders are not going to take a risk based on 100% occupancy. So, be sure that your calculations are made at 75% which is low, but one that provides a more realistic measure.

Fewer Borrowing Opportunities

Because there are not as many financing options for multifamily properties, you will need to careful about looking over what is available. You can increase your options with a larger down payment as that makes it easier for banks and lenders to provide you with the needed money for purchase. Focus on gaining as much money as you can with a large down payment and then shop at lenders who network with other lenders for the best deal.

Interest Rates and Insurance

You’ll need to know all the monthly payments you are going to make before purchasing the property. That includes the interest rates, insurance coverage, and all fees that must be paid regularly so you can calculate the cash flow. Too many investors overlook calculating all the fees which may mean some nasty surprises when it comes to how much money you are making.

The good news about investment property is that there is still a big market that you can take advantage. Keep in mind that financing multifamily property opportunities may be more difficult today than a decade ago, they still provide the type of rental income that makes them a great way to earn money month by month.