A multifamily real estate investment property is an exciting opportunity to expand your real estate portfolio and provide elegant house options for more than one family. Once you’ve scoped out the possible real estate opportunities in your area, learn the basics of receiving the financing you need to make your investment dream a reality.
Also known as a multi-dwelling unit, these properties are typically apartment complexes. However, duplexes, townhomes and separate, adjacent living spaces can all be classified in this category. There are a number of advantages to choosing a multi-dwelling complex. First, it allows you to earn more income. When you have multiple rental units, multiple tenants will rent out your unit. This is particularly true if your location is in a high-demand area, as you can be confident you’ll consistently rent out two or more units.
However, receiving a multifamily loan can be more difficult than a traditional rental location. Lenders see a multi-unit rental as a greater risk because of two main factors. First, the property is typically more expensive than a single-family rental. Next, the additional rental units increase the chance that they may not be rented out consistently. In order to mitigate these factors, search for a property that is in high demand.
There are many types of commercial loans available for a multi-dwelling unit. Traditional commercial banks loans are available but can be difficult to become approved for. Approval typically requires a high credit score, lengthy application, and consistent financial records.
A private money loan is also available for securing your property. A private money lender typically doesn’t require a high credit score, so it’s a perfect opportunity if you have a lower score due to another investment opportunity. Many private money loans are hard money loans, also called bridge loans. These come with high-interest rates and short loan terms. However, they also allow you to invest in your real estate in any way you see fit. This highly flexible financial tool is perfect for multi-dwelling units that require significant renovations.
Finally, some small business owners can receive an SBA loan to start their multifamily real estate investment strategy. An SBA loan is designed specifically for small businesses, so it’s a great option if you weren’t approved for a traditional commercial loan. The application process is lengthy and requires paperwork for both the SBA and your lending institution, so take time to go through the application carefully.