Multifamily homes are a subcategory of commercial real estate; however, depending on how many units make up the home, starting small and investing in duplexes or triplexes may be an easier way to get your foot in the door.
One of the best things about multifamily properties is that it allows the investor to scale their business and grow their investment portfolio efficiently. Financing multifamily properties may seem a little daunting but because smaller units are financed in similar ways as primary homes, it may not be as difficult as you think. Here’s what you need to know about multifamily financing.
Things to Consider
Multifamily properties are any residential living space designed to house more than one family. Duplexes are buildings comprised of two units, triplexes three and quadplexes, four. Anything over four units is referred to as an apartment and requires a commercial/investor-only approach to multifamily financing.
Multifamily properties exhaust a lot of time and considering how the properties will be managed beforehand can save a lot of shock. Managing the property yourself is a great idea for first time investors. Whether you are living in one of the units or not, you’re able to get a first hand look at what the process of marketing, renting and owning an investment property looks like. Hiring a property manager will free up your time and give you the expertise of a professional to guide you along the way.
Keep in mind that all homes require maintenance and how costly maintenance expenses and repairs are depends greatly on the types of properties you own and invest in. Ten single family homes will cost much more in maintenance than ten multifamily units (whether 5 duplexes or a combination of triplexes, duplexes and quadplexes).
Conventional multifamily financing consists of traditional loans from a normal bank and financing institutions. There are generally two options for multifamily financing based on whether or not you plan to live in one of the units. FHA and VA Loans make it possible for investors to obtain loans with favorable rates and repayment terms as long as they live in the one of the units for a set number of years.
As an investor, not living in one of the units multifamily loans generally require a 20%-25% down payment and inspects your credit, credit history, income, debt and all other financial aspects to determine your eligibility for financing. These loans do max out: $620,200 for duplexes, $749,650 for triplexes and $931,600 for quadplexes or 4 unit homes.
There are other, non traditional, ways to finance your multifamily property: hard money loans, factoring, asset lending and many other options. Speak to a tax and real estate professional to see what form of multifamily financing would work best for you.
Contact Progressive Capital Funding to explore our options for financing multifamily properties.