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Multi-family investments: Financing tips for multi-family units

A multi-family property can be a great investment, but financing one isn’t necessarily the same as financing any other residential property.

That’s because, it terms of financing, the overall number of units determines whether a multi-family property is considered residential or commercial.

Not only is the type of financing different, but the requirements for approval are different, as well.

Multi-family residential financing

If it’s a small multi-family property, it’s likely considered residential.

2-4 units

In this case, you’ll probably want to apply for a conventional loan, similar to a single-family residence.

More options open up if you plan on living in one of the units.

In this case, you may qualify for either:

  • FHA loan
  • VA loan
  • Conventional financing

You may be able to end up with a low-down payment and thereby help decrease the upfront investment you’re making in the property.

Multi-family commercial financing

If the multi-family property is larger, it’s likely going to be considered a commercial property by lenders.

5+ units

This means a larger down payment and probably a shorter repayment schedule.

There are some lenders who tend to focus on multi-family financing, so do some research.

Other financing options

Of course, there are some other financing options to consider that are a bit less conventional.

Portfolio loan

A portfolio loan is one way to purchase a multi-family property. It’s helpful for investors who plan to finance several properties at the same time.

Hard money lenders

Another alternative to a conventional loan is a hard money lender. This type of lender doesn’t focus on a borrower’s credit history, but rather on the earning potential of a multi-family investment property.

Real estate syndication

With real estate syndication, multiple investors pool their funds to provide investment property financing.

Common types include:

  • Real estate partnerships
  • Real estate crowdfunding

Equity share investor

In the case of an equity share, the investor provides funds for the purchase of the property, in turn for owning some equity in the multi-family property.

Short-term loan

Yet another possibility is a short-term loan. Payments are interest-only, and the terms generally range from six to 36 months. They’re often used while the investor tries to meet the necessary qualifications for permanent financing.

Now that you understand what kind of financing is available, you need to understand a few more things.

Additional multi-family financing tips

Know your credit score!

A real estate investor likely wants to have a good credit score because it helps get a better loan and a better mortgage rate. If you’re worried about your score, you can try to improve it.

  • Dispute errors & bad marks on your credit
  • Increase credit limits to improve available credit ratio
  • Pay down balances
  • Pay bills on time

Use that down payment!

Also, be sure to make your down payment work for you. The more you put down, the lower your monthly mortgage payment.

Keep in mind though, your required down payment may be dependent on how many units exist within the multi-family property.

About the author

I am from Chicago, IL and I have been lending in this area for 20+ years. My team and I strive to give you an enjoyable mortgage experience while providing you the best programs and rates! I am also offering a FREE mortgage analysis to determine if refinancing is right for you.

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