3 Things to Know About Financing a Multi-Family Property
When it comes to multi-family properties it is important to recognize that there are two different types; there are both residential properties and commercial properties. Residential multi-family properties consist of two, three, or four units. Commercial multi-family properties contain five or more units. When you finance a multi-family residential property, it is very similar to financing a single-family home. Commercial multi-family properties must be financed by special types of lenders.
Three Things to Know
You will need a larger down payment if you don’t plan to live in the property.If you plan to purchase an investment property but do not plan to live in the property you will often need a much larger down payment to buy the property if the loan is of conventional size. The interest rates for an investment property that is not occupied by you, the owner, will be higher than those that are owner occupied. This is simply because the property has more risk associated with it because you will not be there, seeing what happens day to day. Investors feel they are accepting more risk in these cases; this in turn increases their fees and interest rates.
You can sometimes use your rental income to qualify for a multi-family loan.If a lender is willing to consider your rental income as part of your qualifying income for the loan, they will want you to have an existing rental agreement with your future tenants before the financing can be finalized. This is because a vacant building is a greater risk for a lender because they fear you may not fill the units.
The loan limits will be higher for multi-family properties.The loan limits will be higher for multi-family properties, too. Conventional loans traditionally carry a conforming loan limit of over $400,000; loan limits for multifamily dwellings will rise along with the number of units in the building.
Multi-family apartment investing can be very lucrative. Be informed, plan ahead and get ready to make money!
Comments (6)
Good post @Anthony Crecco
Brian Johnson, over 7 years ago
depends on the size of the property. but we start with the vacant first and proceed accordingly as leases expire or evict tenants we don't want
thanks
Anthony Crecco, over 7 years ago
Been a while since I could check my feed, but thanks for your input! I appreciate it.
Raul Dominguez, over 7 years ago
hi kent. i agree. I'm always learning from everyone in life. i prefer commercial multifamily. i do not mix single family in my portfolio, i do however buy and sell notes on SF. thnaks
Anthony Crecco, about 8 years ago
Hey Anthony, I was just wondering what your take is on properties that may need some work and what to do if tenants are still renting when the renovations are set to commence?
Raul Dominguez, over 7 years ago
Thanks for this post, Anthony. I enjoy reading your posts -- they're informative and helpful, no matter how much experience an investor has. I'm curious after reading this -- do you prefer residential multifamilies over commercial multifamilies? And would you mix single family into your portfolio as well or do you just stick with multifamily?
Kent Clothier, about 8 years ago