Are you under contract to buy a small multifamily property and looking for the best way to get high leverage for your acquisition? In this post, we will discuss how you can use Bridge Loans to finance your acquisition and get the highest leverage possible.
The Situation
The person in the video is under contract to buy a fourplex unit that is currently rented but has rents well under market rates. The plan is to rehab the interior and exterior units, furnish them, and rent them out on a short-term and midterm basis. The purchase price is $495,000, the rehab budget is $60,000, and the after repaired value (ARV) is $700,000. The credit score is 740+.
The Solution
Bridge Loans are an excellent way to finance small multifamily acquisitions like this. Because it is residential property, standard Bridge or Fix and Flip financing can be used. In this case, the lender can go up to 75% of the ARV as a gross loan amount. That means a total loan amount of up to $525,000.
However, since we cannot go up to 90% of the purchase price, we will only go up to 80-85% of the purchase price. We can also fund the rehab with a two-year Bridge Loan, depending on how all the numbers work. Furnishing the property and renting it out will give the borrower time to fix the property, and in 12-18 months, they can refinance out of the loan.
How It Works
The borrower can document their income from the short-term and midterm rentals, which will help them refinance out of the Bridge Loan. With the highest leverage available, they can fund the rehab and get the property up and running. They can hold back the rehab funds and complete renovations on the property while renting it out.
After seasoning the property for 12 months, the income generated from the rentals can be on the borrower's tax returns. The property is still considered residential since it is a four-unit, and the borrower can refinance it as a non-owner occupied conventional loan. At that time, they can also consider going into a dscr loan if it makes sense.
Conclusion
Bridge Loans are an excellent way to finance small multifamily acquisitions like this. With the highest leverage available, the borrower can fund the rehab, fix up the property, rent it out, and season it. They can document the income generated from the rentals and use that to refinance out of the loan. By following this plan, the borrower can get their property up and running and start generating income as soon as possible.