If you’re looking to get into multi-family investing, you might be concerned that it’s trickier to finance a multi-family property than a single-family property.

Actually, it’s just different — and sometimes it’s even easier!

 What are some of the options for financing your investment in a multi-family property?

1. A bank-financed mortgage loan will have you gathering increased documentation for multi-family properties, compared with a single-family unit, including signed rental contracts verifying the rental income reported.  Institutional lending is certainly an option, but also consider the alternatives below, for possible cost savings and a more simple financing process. Be prepared for an institutional lender to require 25% or more down payment.  In addition, bank mortgages focus on the income and profitability of the property, less on your credit and income.
2. FHA financing for multi-family properties has many of the same advantages as with single-family homes.  You need less down payment than required by other bank mortgages, and the rates are the same as for single-family homes.
3. Explore using the equity in your other properties, including your own home.  Your equity might provide a down payment or even the entire purchase cost, at more favorable rates than a new first mortgage on the investment property.
4.  Seller-financing may be another opportunity for your multi-family project.  When you’re buying a multi-family unit, you’re almost always dealing with other investors who might be more savvy or open to creative financing options.  With some diligence you can find apartment owners with 100% equity in their properties who will sell in return for a down payment and monthly mortgage payments made directly to them.  Or, you can take over the current owner’s mortgage payments and the deed, without moving the loan into your name – also called a “subject to” purchase.  Sellers are more interested in financing when they want to move the property quickly.
5.  Private money investors may help your project get off the ground.  You’ll want a well-crafted joint venture agreement defining roles and funding.
6.  Let the government help you buy it.  Property in lower-income areas may be eligible for tax credits, based on occupancy by a certain number of low-income renters.  Tax credits can be sold to corporations to enable them to relieve some of their tax obligation, and the proceeds can be used as a down payment.  Alternatively, some U.S. Housing Administration programs allow some of the closing costs to be rolled into the mortgage.

These are some of the options you should explore for financing a multi-family property.  Creativity and expert advice can help craft a financing strategy that fits the property’s value and income flow.

What are some ways you’ve financed multi-family investments?

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