Multi-family properties are a great way for investors to create steady cash flow opportunities for their portfolios, increasing their potential to earn more income, as well as increase their net worth. Doing your due diligence—and that includes picking the right lender—can make the loan application process (and the end result!) easier to navigate.
So, what constitutes a multi-family property?
From smaller-scale properties like townhouses and duplexes to larger, more traditional ones like apartment buildings and high rises, multi-family properties can run the gamut based on your investment needs and goals. For all the reasons mentioned above, it’s easy to see why multi-family properties are an appealing prospect for investors to make. In addition to generating reliable income, they are also a more efficient way to manage risk.
If, for example, you have a 4-family rental property, but one unit remains vacant, you still have the other three units bringing in monthly payments to cover property costs until the fourth unit is filled. With a single-family property, monthly costs will have to come directly from your pocket until a new tenant moves in.
What is a multi-family loan?
There is no one-size-fits-all approach to multi-family investment loans and based on your goals, as well as the property you invest in, the loan will vary. There are short-term loans that can range from 6-to 12 months and long-term ones that can have repayment periods of between 5 to 35 years. Your status as an investor and the kind of loan you'll need will be reliant on how quickly you’re looking to pay back the loan, and that timeline could very well rely on the size of the property you’re investing in.
Multi-family bridge loans, for example, are often used for purchasing or refinancing 5+ unit apartment complexes.
While previous property experience matters a great deal when securing a private money loan for multi-family projects, so does a strong credit score (often of 640 or above) and debt service coverage ratio (or DSCR) of over 1.05.
Fortunately, for experienced borrowers looking to take the plunge into multi-family projects, Temple View Capital Funding, LP (“TVC Funding”) is now offering fix-and-flip and bridge loan products for residential properties with 5-10 units with financing for up to 24 months.
Why invest in multi-family real estate?
Between 1992 and 2017 (that’s a 25-year period for those who skipped doing the quick math), data has shown that multi-family properties have provided the highest average annual total returns (9.75%)of any commercial real estate sector with the second-lowest level of volatility. Between baby boomers increasingly opting to rent (less responsibility and space to worry about in comparison to homeownership), and millennials placing a strong demand on rental properties (data from the U.S. census bureau shows that renting represents the most common form of housing for this generation), investing in multi-family real estate has never been more appealing.
For investors, the numbers stack up. Real Capital Analytics research from 2017 revealed that multi-family property investors generally received higher loan-to-value ratios (67% on average) than the broader pool of commercial real estate investors (59% by comparison).
Real estate investment always carries some risk; however, multi-family units have the potential to add serious growth to a portfolio and create real financial security for investors. With a partner like TVC Funding, you will have unique and feasible multi-family loan options to expand your real estate business. For more information on loan terms and the application process, contact us today.