Important Facts You Should Know About Multifamily Financing

David Cohn
Oct 5, 2020
Multifamily Loans

Rental property investing may be just what you need if you are looking for an investment strategy that can provide additional monthly income and a slow yet steady appreciation in your portfolio’s value.

Multifamily properties such as apartment complexes can be a good option if you look for a relatively stable asset that produces a reliable income.

Financing these types of properties will be easier with commercial multifamily loans.

A multifamily property is either commercial or residential. It is considered residential if there are only four units, and commercial if it has five or more.

Multifamily properties are further divided into different types, such as townhomes, duplexes, and apartment buildings. They generally yield a higher monthly rental income compared to single-family homes.

They also have lower maintenance costs, making them more affordable and more profitable as a long-term investment.

While a multifamily property tends to be more expensive than a single-family home, it can become easier to finance with the right commercial multifamily loans.

Why Invest in Multifamily Properties?

Multifamily real estate is known to generate a steady cash flow per month, even if there are a few vacancies and even if some tenants pay late.

If someone moves out of a single-family property, it would be completely vacant—which means there is no income.

But if you have a 10-unit apartment, one vacancy would result in just 10 percent of the property being unoccupied.

The property continues to make a good income. This is why apartment buildings are rarely foreclosed on, making them less risky investments for lenders.

Moreover, a lender may consider giving you a more competitive and reasonable interest rate on a multifamily asset.

If you are new to commercial multifamily loans, there are some important things you need to know before applying for financing.  

Here are the facts that could help you understand the benefits of multifamily financing and whether it is the right loan for your investment:

Reason #1: It's best to start as early as you can.

Anyone with prior experience in investing should know that last-minute decisions can lead to disastrous results.

This also applies to seek financing assistance from a lending institution or a bank. You can avoid this pitfall by preparing all the requirements ahead of time before getting in touch with the underwriter.

Do your research and have all your information and paperwork ready as early as possible, so you do not have to panic while gathering the required documents within the shortest amount of time.

Reason #2: Know your options.

There are many types of commercial multifamily loans, but just because someone else recommends a particular type of loan to you doesn’t mean that it’s the best choice.

Don’t settle for the first loan you find, no matter how popular it is. It is still best to have many options to choose from, whether they come from credit unions, banks, private commercial lenders, or other financing sources.

Reason #3: The underwriter wants to avoid risk.

Loan underwriting is a process used by lenders to determine if your loan application is accepted as a risk.

Underwriters assess your ability to repay a loan according to their analysis of your credit score, your capacity, and the collateral.

That said, they can make their ultimate decision without equal consideration to each of those factors. Another may offset weaknesses in a certain area.

Its the underwriter who’s responsible for making the loan terms and your repayments.

Keep in mind that they are not on your side; they would tend to act conservatively to reduce the risk taken by a lending agency they work for.

Try to think like an underwriter when assessing your loan application and fill in any gaps to increase your approval chances.

Reason #4: Location matters.

You may have heard it many times before, but the location is truly critical when it comes to real estate, including your application for commercial multifamily loans.

It’s a factor that lenders consider when determining your loan-to-value ratio and the terms of the loan.

Reason #5: Lockdown the interest.

Do this right after the loan is approved. You can never tell when market conditions will fluctuate and change, but if you lock down your interest rate, you do not have to worry about changing with the market.

Reason #6: Balance the rent.

The terms of your loan will evolve depending on the kinds of tenants you have. Determine if you are focusing on the market price or offering housing subsidized by the government.

Reason #7: Understand loan-to-value issues.

There are rules on how much you can take out for a property, and it is usually based on the property’s worth. The maximum is around 80 percent.

Reason #8: Clarify payment penalties.

As you go over the selection of commercial multifamily loans, don’t forget to check their payment terms and take note of those that can match your investment strategy.

That way, you can avoid amassing payment penalties down the line.

Types of multifamily financing

Condos, duplexes, fourplexes, and triplexes are considered multifamily properties and categorized as one-to-four-unit properties.

Commercial multifamily loans available for them include government-backed loan programs (i.e., FHA) and conventional mortgage loans.

Some borrowers may find themselves in a situation where they may not meet the requirements of conventional lenders and banks.

Even if the lender approves the loan, the multifamily loan interest rate will likely be higher interest rate or the terms unfavorable.

In that case, it may be best to turn to a private commercial lender.

Discerning commercial real estate, investors rely on Capital Investors Direct for commercial multifamily loans if they cannot secure funding through conventional financial institutions and banks.

With our help, you can get uncomplicated loan products and favorable terms—immediately.

You can also rely on Capital Investors Direct for information and tools you can use to make an informed decision before taking out any commercial property loan.

That way, you can make the most of your profits and avoid any problems down the line.

Our team consists of experienced loan specialists, advisors, and underwriters to provide transparent, simplified, and convenient lending services.

Members of our team have only your best interests in mind, as many of them have also been in your position at some point in their lives.

We understand your need for the right guidance to lead you to the best path to ensure your success in the long run.

Apply for a commercial multifamily loan with Capital Investors Direct. Get in touch with us today to discuss your project and investment goals.

Fill out the application form on our website, and we will get back to you within 24 hours with answers and proposed solutions that best fit your needs.

The bottom line

By knowing all these facts, you can be more confident in making informed decisions when choosing commercial multifamily loans.

We hope that all the information we shared here can also lead you to the right lender who can truly help with your project.