Financing for Properties with 5+ Units

As a real estate investor, you’re probably looking for ways to grow and diversify your portfolio. One of the ways to accomplish this is through investing in multifamily properties that are five or more units. Multifamily properties offer investors the opportunity to purchase a property, rehab it if necessary and then use it as a cash-flowing rental property. This is attractive to real estate investors because, in a market that seems to be shifting towards renting not buying, multifamily properties offer the opportunity for a strong return on investment.

As a new investor looking to get started how can you obtain financing and what is the process like to get a multifamily loan? In this article, we’ll explore the financing options as well as the financing process for real estate investors looking to invest in multifamily properties.

1) Financing Options for Investors

As an investor looking to get started with multifamily properties you first need to understand the financial options that are available to you. One of the best ways for you to get financing to purchase or refinance a multifamily property is through a loan from a specialty financing company. These are usually private lenders, such as Lima One Capital, who can offer you faster closings and competitive rates with less red tape than a traditional bank. This is a great option for a new investor who is looking for a reliable financing partner to guide them through the process and helping them to do their first deal. Things to look for when selecting a lender are straightforward rates and terms, no hidden cost or junk fees, and a streamlined underwriting process.

2) Application Process

Once you find the right financing partner you will need to complete an application. After applying there will be a certain criteria that you as a borrower must meet to be pre-qualified. One of the major factors toward being pre-approved for a loan is your credit score. A credit score of 670 is typically the minimum credit score required unless you are a member of a large entity in which case the minimum credit score is 630. Other factors that a lender will look for in you as a borrower is your ability to provide at 20% of the total cost as a down payment, your experience investing in multifamily properties, and that you have created an entity to obtain the loan under.

3) Underwriting Process

After you’ve been pre-approved as a borrower for the loan, the property you wish to obtain financing for will be underwritten to ensure that it meets the requirements of the lender. One of the best indicators of a strong property is the Debt Service Coverage Ratio, which is the net operating income divided by the operating expenses. A solid DSCR for a multifamily property is 1.20 or higher. Other factors for a property include location, whether or not the property will pass an inspection, and if the appraised value of the property makes sense to the lender. This process in total can take about 3-4 weeks to close with a refinance and 4-5 weeks with a purchase and rehab.

4) Closing

After going through the pre-approval process as a borrower and meeting the property requirements in the underwriting process, your multifamily deal will close and fund. Once you fund your deal the monthly interest payments will start and you will begin paying off the debt on your property through your cash-flow. At the end of the term, if you wish you can refinance your property into a long-term loan such as a 30-year mortgage and continue to have it serve as a cash-flowing property.

Multifamily investing is a great way for investors looking to diversify their portfolio and gain cash-flow in an increasingly strong market. By understanding the process to acquire financing for a multifamily loan, you can make the best decision for you and what fits your goals to grow your portfolio. At Lima One Capital we offer industry-leading multifamily financing to real estate investors across the country. If you would like to learn more about our multifamily program click here.

Lima One Capital, LLC. NMLS ID # 1324403, 201 E. McBee Ave. Suite 300. Greenville, SC 29601. Lima One Capital, LLC is not currently licensed in AK, ID, ME, MT, ND, NV, SD, UT or VT. Lima One Capital, LLC is licensed or exempt from licensing in all other states. Minnesota: This is not an offer to enter into an agreement. Any such offer may only be made in accordance with the requirements of Minn. Stat. §47.206(3). Lima One Capital, LLC is licensed in Arizona as a Mortgage Broker (License No. MB-0936439) and Mortgage Banker (License No. 949706). Lima One Capital, LLC is licensed as a California Finance Lender under Department of Business Oversight (License No. 60DBO-45834). Lima One Capital, LLC is licensed in Florida as a Mortgage Lender (License No. MLD1555) and Mortgage Servicer (License No. MLD1662). Lima One Capital, LLC is licensed in Oregon as a Mortgage Lender (License No. ML-5397). Annual percentage rate may be increased after fixed-rate period expires. Loans are subject to additional underwriting criteria.