Getting Financing For Multi -Family Houses
The first thing to remember if you are thinking of investing in multi-family houses is the loan you will have to source will need to be a commercial loan, not a residential loan, if your property is a 5-plex or larger. The rates on a commercial loan vary quite significantly between lenders, so it's essential you shop around to get the best deal you can for your own personal circumstances. Most private lenders will be unwilling to risk a loan on multi-family houses that are smaller than a 5-plex, as they just don't generate the income most lenders feel is viable.
You should also be aware that the cost of buying multi-family houses is more than buying a normal residential home. The plus side is you qualify for a higher loan, and are also able to use the income from rentals to help with the mortgage payments.
It's assumed by most buyers they will get a loan of 75%-80% on the purchase price of multi-family houses. Most loans however are based on the property's appraised value. This takes into consideration several factors, rent income from rent-regulated tenants for instance. The deferred maintenance costs of the building will also be taken into account. This can lead to quite a disparity between the purchase price and the appraised price. Buyers may have to find a considerable amount more equity than they first originally thought.
Any vacancies that exist in multi-family houses are not a drawback in securing a loan. Most lenders will be happy to assume that the owner will be able to fill any vacant units in their units and will attribute rents to the empty units in their calculations. The lender will however check to see that there are no rent restrictions in place on these multi-family houses, which will limit the income they can apportion to any vacant units. If regulated rents exist then of course the lender will take this into account in his assessment.
Many buyers of multi-family houses look at the potential of their investment and plan on the assumption that everything will work out to their maximum advantage. They may envisage that they will be able to collect the maximum rental from tenants, for the type of property, and location, given they can work out deals with current low-paying rent occupants. A lender will be a lot more cautious in his assessment. In the case of multi-family houses he will be well aware that any low rented tenants may not be willing to agree to an increase in rental, or leave the property. This means the lenders assessment of potential cash flow, and the buyers will usually vary, so keep this in mind.
One last thing to take into consideration before buying multi-family houses
Is the fact that you are not only going to be an owner, but also a landlord. This brings into play things like managerial skills. One of the most important tasks is to ensure you get tenants of the standard that you require in your multi-family houses. Don't just let your property to someone because they can pay the rent. Interview potential tenants, check their backgrounds, and make calls to previous landlords. If you follow these guidelines you can save yourself from many problems in the future.
Never forget what your goals are. You should always try and maintain the profits you envisaged when buying the property. Multi-family houses can be a good investment if you know how to manage them properly, and put some time and effort into making it succeed.
|About the author:|
David gaIan has been in the real estate business for over 10 years. Beginning with a single rental he now buys houses for cash, can stop foreclosure, and provides information for commercial properties. David gaIan is the owner and operator of houseoption.com a website dedicated to helping homeowners facing foreclosure and other house related problems. You are free to publish this article unedited on your site as long as all links back to us remain in tact. We Buy Houses
e-mail: david_commercial at houseoption.com