When it comes to commercial real estate, multifamily housing is generally considered to be the starting spot for real estate agents who are transitioning to this space. Everything’s bigger here; more units, which equals more maintenance, bigger loans needed and ultimately, more income. The starting point is to make sure you understand and can secure the multifamily financing that is necessary to get in the game.
Types of Multifamily Rental Units
There is a myriad of multifamily real estate types – spanning from rental properties harboring at least two units, to apartment buildings and banks of adjacent condos. The residential option is delineated as such: any building with 4 units or fewer; whereas any building with 5 units or more is considered a commercial rental property. The former have lower requirements/burdens on you – but this also caps the income you can garner from them. Let’s take a look at the financing options for them.
The Available Financing Options
The traditional financing route entails sending in loan applications to banks, CMBS lenders and life insurance companies. These are large, institutional lenders with the ability to loan large sums of capital at interest rates dependent almost entirely on the objective creditworthiness of the borrower. If you qualify, your rates can be quite low for those with stellar FICO scores.
Another common provider of multifamily financing are agencies such as Freddie Mac and Fannie Mae; these also loan money at the direction of the federal government’s Small Business Administration (SBA) for qualified applicants. The major advantage of having the government as a cosigner cannot be understated: up to 75% of the loan will be repaid by taxpayer funds in the event of borrower default.
Lastly for the traditional form of financing is the CMBS – Commercial Mortgage-Backed Security. Life insurance companies and institutional banks are the usual lenders here, and the money is delivered in the form of a bond, courtesy of a conduit. The list of viable lender companies here are a who’s-who of Forbes 500 mainstays: Goldman-Sachs, JPMorgan Chase, Wells Fargo, etc.
Contact Capital Finance Partners today to learn more about our funding solutions for multifamily properties.