Mortgages & Creative Financing

7 Tips for Finding Financing for Multifamily Deals

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2 Articles Written
wooden model of multifamily property on gray background

A multifamily investment property, such as a duplex, triplex, or quadplex, is an excellent addition to any real estate investor’s portfolio and can provide advantages over traditional single family homes. But like any property, favorable financing is oftentimes the key to its success.

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While finding financing for a multifamily property may seem similar to finding financing for any other home, it actually brings a different set of rules and requirements. And for most investors, it means getting a little creative and going beyond simply “getting a loan.”

If you’re considering the purchase of a multifamily home as an investment property, here are the top tips to help you get the financing you need. 

How to Finance a Multifamily Property

1. Get a bridge loan

Bridge loans are excellent options to get financing for short-term rehabilitation projects. There are many lenders or banks out there that will offer these types of loans for fairly-priced deals.

You will need to keep in mind that paying interest to them is part of the deal, but the faster you can rehab a home or get it refinanced, the better deal it is for you. Some companies do not even have prepayment penalties, which can further incentivize you to get a project wrapped up and sold sooner.

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2. Live in the property yourself

Whether you’re living in the multifamily building or not has an effect on your financing. If you are, you are able to get an owner-occupant mortgage, which almost always means a lower down payment and lower interest rates. The Federal Housing Administration even offers a special loan just for this purpose.

If you’re only a property landlord, you’ll need traditional financing and will likely need to put down at least 20 percent. 

Related: Thinking About Buying a Multifamily? STOP! Wait Until You Read This!

3. Take advantage of real estate syndication

Real estate syndication is when several investors come together to contribute their funds and knowledge to purchase a property. If you get enough people together, you may actually be able to purchase a property with no money down. Likely the biggest advantage of this scenario is that people can be part owner of a property they could never buy or manage on their own. 

4. Find an equity share investor

If you have a multifamily investment property you’re interested in, but you think you’ll need some help getting financing, try to find an equity share investor. This is an investor who provides funds for purchase in return for an equity share in the property (a mutually agreed upon percent). 

Of course, your equity share investor will be entitled to a percent of the monthly income. And if the property is ever sold, they’ll receive their percent of the proceeds. Because multifamily properties can provide great long-term passive income, you probably won’t have trouble finding an investor if you have a good property. 

5. Use future rental income to secure financing

If you think your income will stop you from getting a loan, remember that you can actually use future rental income as part of your income on the loan application. Of course, you will need actual signed lease agreements from tenants and not just details of prospective renters. So, if you’re investing in a vacant property, this won’t be an option. 

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6. See present value instead of future value

If the plan is to fix up a property, you may not always need to do so immediately or all at once. If the property is in livable shape, you can take advantage of earning rental income right away while renovating units one at a time.

Also, while this won’t apply to every investment property but it will to many, there are cases where a property may contain resources you can use to help finance the purchase. Think things like gravel, landscaping, lumber, building materials, or even dirt (if it’s the right kind).

You’d be surprised what could be valuable to someone else. Construction companies will often pay big money for these sorts of supplies. If you’re purchasing a property, don’t get so focused on future potential that you miss out on value sitting there now.

Related: Tips for Vetting a Multifamily Investment Property

7. Let your repair allowance work for you

Like with any home purchase, an inspection is required if you’re buying a multifamily property. Once that’s done, the buyer will get an itemized list of everything that needs attention with an estimate of cost—a repair allowance. And then as long as the seller agrees, that money is returned to the buyer at closing.

If you have the expertise and can do the repairs yourself, you can drop that money right back into your loan. Or if you have connections with contractors or other repair professionals, you can possibly get a discount for the prospect of future steady work. Let your repair allowance do some work for you! 

Final Thoughts

Purchasing a multifamily home is appealing for a lot of investors, but the process, the down payment, and the required income can be pretty daunting. Don’t let that scare you away though, because there are plenty of opportunities for financing beyond just getting a loan to pay for it—like bridge loans, equity share investments, and more.

Use these tips, and you’ll be on your way!

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Questions about any of the above financing options?

Ask me in the comment section below.

Jessica Santiago Jones is Director of Strategic Accounts at LendingHome and is also known as the Investors' Agent in North Florida. Jessica, started in the mortgage industry during college. She worked her way up the ladder from assistant to loan processor, loan underwriter, mortgage broker, loan originator, and fraud underwriter–giving her a full spectrum of experience. Jessica has her real estate license, real estate broker license, and invests in real estate herself alongside her husband. She currently owns a real estate sales and property management company, connecting her to sellers, buyers, and investors throughout the country and overseas. With Jessica's experience in most all areas of real estate and mortgage financing, she has become one of the "go-to" professionals in her area. Staying on top of industry statistics and having hands-on experience in investing has helped Jessica make sure her customers are educated, kept up to date, and have access the best programs available. Jessica was looking to add more options for her investors in regards to funding and incidentally found LendingHome. She and her husband had used LendingHome for over a year when a great opportunity to become part of the LendingHome team presented itself.

    Javier Cabero Chavez
    Replied about 1 month ago
    Excellent article. Thank you for sharing.
    Brandon Moore from Central Arkanas
    Replied about 1 month ago
    Great post, this is my second time hearing about a bridge loan, so that is something I'll be paying more attention to. Thanks.
    Roman Wippel
    Replied 25 days ago
    Can you explain a bit more what exactly a repair allowance is and how it would actually work?
    Soddee R. Knight Investor from Oklahoma City, OK
    Replied 17 days ago
    We love the cashflow from acquiring correctly priced multifamily properties. Great article Jessica! Looking forward to your next one.