I love investor questions, in fact I encourage them.
So today, I'd like to share one from someone in my network who is looking to scale their real estate portfolio from residential into Multifamily.
This is a common question that comes up often…
“My biggest challenge is financing. I would LOVE to get into MF (2-3 units) but it’s tough to find the capital. Any tips?”
I didn't know this persons situation or goal other than that they owned a single family, a condo used as a rental and their desire was to get a 2-3 unit property.
Here's what I shared with them...
At a high level, if you are looking to scale into MF, here’s a few ways to go about it.
1. If you are purchasing a rehab or even light fixer you can get a short term loan from either a hard money lender or private money lender. You pay closing costs and fund a part or maybe none of the rehab depending on the lender terms.
2. This individual already owns 2 properties… is it possible to do a cash out refi on a rental to pull out some cash for the downpayment? Rates aren’t great right now but the availability of cash to leverage another property also paying you could outweigh the increased rate. (I wasn't sure what rates they were paying currently but assumed closer to 4% or under.)
3. Do you know anyone who lends from IRA’s or their retirement accounts? They can lend for financing on a purchase and you agree on specific terms for repayment. Or perhaps they lend on the down payment and you pay it back once stabilized. There's lots of ways to structure this one depending on the relationship.
4. If they had a Heloc on main home, they could also arbitrage returns as another option.
5. Direct seller marketing to send out letters to owners to purchase off market and perhaps at a better price than something listed on mls.
Tip: you cannot purchase fixers under conventional financing as banks don’t like these properties.
Why? They are much harder to sell if something goes wrong with your project or you for some reason walk away.
Hope that helps!
I always welcome investor questions and encourage fun conversation between everyone.
It's how we learn right!? 😁
Nicole