Insula Capital Group

Cars parked in front of a multifamily apartment building

A Comprehensive Guide to Multifamily Financing

Real estate investors often look for opportunities to diversify their portfolios. A great way to earn higher ROI is to invest in multifamily mixed use properties.

This strategy is versatile, high-paying, and extremely beneficial for beginners in the real estate market. With the current boom in the US housing market, it’s the perfect time to invest in a multifamily real estate project.

Whether you want to buy and hold, develop, or fix and flip a multifamily property, we can help. Our flexible hard money loans in New York can help you close faster and fund the project even within strict timelines.

Multifamily real estate, coupled with other types of passive property revenues makes an ideal combination for new and seasoned real estate investors.

This blog talks about multifamily properties in detail. So let’s get started.

What is a Multifamily, Mixed Used Real Estate Property?

Mixed use multifamily properties are referred to as residential and commercial buildings that have two or more residential units. In commercial settings, a mixed use property may also include an office, a retail store, a hospitality space, or a pad site.

Types of Multifamily, Mixed Used Building

There are several types of multifamily properties, among which, these are the most common ones:

An Apartment Building

This term is used for buildings with condos, studio apartments, and larger apartments with two to four units per building.

A Duplex

A duplex is a multifamily property with only two units.

Commercial Multifamily Property

A commercial multifamily real estate property has five or more residential units.

A house model with keys

How to Finance a Multifamily Mixed Use Building

Financing a multifamily building used to be a challenging task. Thanks to private money lenders, investors can obtain fast and flexible loans at lower interest rates. At Insula Capital Group, we offer robust loans for fix and flip and multifamily projects across NY.

In this section, we discuss private money loans for real estate investors and other creative ways to fund your next multifamily project.

1. Conventional Mortgages

This is a popular way of financing multifamily, mixed used real estate projects. However, conventional mortgages have several downsides.

The rules for conventional mortgages are very complex in nature and investors need to comply with a long list of requirements. Some of these requirements include:

  • The minimum credit score requirement to obtain a conventional mortgage loan is 620. A point below this usually nullifies the application.
  • Conventional mortgage lenders require borrowers to pay at least 15% down payment for a duplex, and 20% in case of a triplex and four-plex.
  • For a multifamily, mixed used loan, the minimum down payment requirement is 25%.
  • You need to show a 50% or lower debt to income ratio for conventional mortgage financing.

2. FHA Multifamily Loan

FHA loans are provided by FHA-approved lenders. These financing packages are designed to help the low-income tier invest in multifamily properties.

Therefore, an FHA loan may not be approved for a mixed family building with more than four units. FHA loans offer low rates, require less down payment, and can last for at least one year.

Property paperwork with a signature post-it

An FHA loan is not a good option for you, if:

  • You don’t intend to live in the property for more at least one year.
  • You don’t have at least a 580 credit score to buy a two unit-property.
  • You don’t have a low debt to income ratio with at least 620 credit score to buy a four unit-property.
  • You cannot pay at least 3.5% of the down payment.

3. HUD Multifamily Financing

Similar to FHA loans, HUD loans are offered and insured by governmental authorities and are quite favorable for multifamily investors. However, you need to maintain financial creditworthiness to obtain a HUD loan.

Moreover, you need to have vast experience in the real estate industry with a minimum refinancing amount of over one million dollars.  You’ll also have to go through annual operational audits to stay compliant with HUD regulations.

4. Private Money Financing

Among all the financing options mentioned in this section, private money loans are the best way to fund a mixed used property, especially for beginners. This option works great if you’re interested in financing a multifamily mixed used real estate property with no capital.

A private money loan is worth exploring. Opt for a trusted lender like Insula Capital Group in NY. Our qualified and experienced private money lenders aren’t affiliated with financial authorities. Therefore, they don’t require real estate investors to fulfill extensive requirements for private financing.

Different private money lenders offer different types of financing solutions with no set rules. They don’t analyze your past investments, neither require a stellar credit history.

Moreover, you can obtain a private money loan within a few days and close profitable deals proactively.

Here are the two steps that are common in the application process for all types of multifamily loans, regardless of their type, nature, and terms:

1. Showcase Financial Documents

Not every lender is as flexible as Insula Capital Group. Contrary to popular belief, traditional lenders assess more than just your financial savings. They require a stellar credit report and a competitive real estate experience.

In addition to regular documents, you’ll also have to provide:

  • An investor resume that talks about your previous investment projects in the real estate market.
  • Tax return reports and a complete list of assets and liabilities.

2. Submit Pro Forma vs. Underwriting

Pro forma and underwriting documents are not different. Both terms are used interchangeably by real estate investors. It’s a financial statement that states a deal’s terms and also mentions predicted revenue and expenses

They’re required at the time of applying for multifamily mixed used loan. A pro forma or underwriting allows borrowers and lenders to understand loan requirements. It also enables you to timely apply for a credit extension or a negotiation.

An investor signing a hard money loan application

Financing Glossary for Multifamily Real Estate Investors

Here are some key financing terms you should know before applying for a loan to fund a multifamily mixed used project:

1. Interest Rates

Whether you opt for a traditional loan or a private money loan for a multifamily project, the lender will charge an interest rate on the payments. This rate depends on the type, term, and merits of a deal.

Lending companies also tend to check the borrower’s experience, equity, and risk associated with the real estate project. If you’re looking to minimize terms and conditions, opt for private money financing for real estate developers available at Insula Capital Group.

2. Terms

Multifamily mixed used property loans involve deal-specific terms and conditions. For example, the terms will vary for buy and hold, development, and fix and flip projects.

Moreover, the repayment duration, property type, and borrower’s creditworthiness can significantly impact your deal. Your best bet is to apply for a private money loan for real estate instead of conventional multifamily mortgages. The latter tend to amortize over fifteen to thirty years but follow extremely stringent terms and conditions.

3. Loan to Value Requirements (LTV)

Residential multifamily property hard money lenders offer flexible terms for investors and developers. You don’t need to show any down payment proof, neither comply with a 100% LTV ratio.

On the contrary, traditional lenders usually require an 80/20 LTV ratio. Depending on the risks associated with real estate projects, you may even have to max out at 65% LTV. Reiterating, the LTV numbers depend on the quality of borrowers and deal specificities.

Why Hard Money Loans Are the Best to Finance Multifamily Properties

Here are four primary benefits of getting a hard money loan to finance a multifamily mixed used property:

1. Quick Process

Multifamily mixed used projects require quick closings. This is where hard money loans come in. As opposed to traditional loans, private financing can be approved within a few days.

Hard money lenders aren’t interested in your credit history or existing liabilities. If you’re looking for the best hard money lender in NY, look no further than Insula Capital Group. Our financing solutions for mixed used real estate projects are perfect for beginners as well as seasoned investors.

2. You Can Always Borrow More

The worst thing about a traditional real estate loan is that they require you to pay at least 5% of the purchase value. Hard money loans, however, have no such criteria. While banks may not offer any additional loans to real estate investors, private lenders extend a more flexible hand.

In some cases, your hard money lender may even finance 100% of the multifamily unit’s purchase price. And with only one down payment, you can secure monthly interest rates that are lower than the market average. Insula Capital Group offers exemplary private money loans for real estate investors with no hidden fees and terms.

3. Create Long-Lasting Borrower-Lender Relationship

The real estate industry is all about making lucrative, mutually beneficial connections with suppliers, manufacturers, developers, builders, and lenders.

A private lending firm, compared to a credit union or a bank offers you an opportunity to build a strong network. As mutual trust builds and your creditworthiness improves, private money lenders may extend your repayment duration and term limit.

They also offer professional financial advice to beginners and help them build a deeper understanding of the real estate market.

A modern, white multifamily building

4. Scaling Up Is Easy

You cannot scale a traditional real estate loan. If you think that you’ll need additional financing in the future, explore hard money solutions. These flexible loans for real estate investors produce quick results, higher returns, and a strong portfolio add-on.

As a result, your real estate investments grow over time and allow you to scale up and invest in larger, better multifamily mixed used properties.

Best Practices for Financing a Multifamily Real Estate Property

In addition to having adequate knowledge about the real estate market, you should consider some other things before investing in a multifamily unit. While this investment usually involves lower risks, you may experience bumps midway through the process.

In this section, we discuss three expert tips to help you avoid slipups such as rent value inaccuracies or hiring the wrong lender.

1. A Property Manager Can Be Helpful 

A property manager can help you manage the day to day hassles of financing a multifamily property. They can collect rent, take care of necessary repairs, and communicate with tenants on your behalf.

Moreover, they can also help you negotiate rental terms, rates, and other particulars pertaining to multifamily residential and commercial units. A property manager comes with unique knowledge and expertise governing the ins and outs of running a mixed use property. Hiring one can help you stay on top of your investment portfolio while staying rest assured your property is in good hands.

2. Study Property History before Making the Down Payment

Real estate developers often forget or delay checking a multifamily property’s history. You must obtain a copy of previous tenant agreements, leases, utility bills, and contracts. This will help you gauge whether the property has any unresolved claims or legal charges.

Knowing a multifamily property’s history will help you identify potential agreement inaccuracies or suspicious activities that were previously reported within the premises.

Hire the Best Private Money Lending Company in NY

At Insula Capital Group, we offer fast, reliable, and flexible financing solutions for real estate investors. You can obtain quick multifamily mixed used loans, buy and hold financing, or fix and flip loans without having to comply with strict lender requirements.

Dollar bills stacked together

For more details, contact us now. Or apply for a hard money loan in NY right away!