Investing in a multifamily property can be a lucrative endeavor. However, getting pre-approved for financing can be a daunting task, especially for those new to commercial financing. In this post, we’ll discuss the steps to get pre-approved for financing to buy a multifamily property.
Assess the Property
The first step in getting pre-approved for financing for a multifamily property is to assess the property. This includes determining the number of units, occupancy level, and if there is room to raise rents. Additionally, you should consider if the property needs significant repairs or renovations.
Learn Commercial Financing Framework
Once you have assessed the property, it's essential to understand the commercial financing framework. Unlike residential financing, commercial financing is complex and has different criteria to qualify for different types of multifamily loans. Therefore, it is crucial to learn the basics of commercial financing to understand what lenders are looking for.
Determine Financing Type
After assessing the property and understanding the commercial financing framework, the next step is to determine the financing type that suits your investment strategy. For example, if the occupancy level is low, you may need a bridge loan to acquire the property and stabilize it. A stabilized property is one with 90% or more occupancy and rents at market rates. Once you stabilize the property, it becomes easier to get financing, and the value of the property increases.
Bring Information to a Loan Officer
Once you have determined the financing type that suits your investment strategy, it's time to bring that information to a loan officer. The loan officer will analyze the property and the type of financing you need and determine if you qualify for the loan. Factors that the loan officer will consider include the rent roll, unit mix, any renovations that need to be done, and if rents are below market rate.
Consider a Money Partner
If you're buying a million-dollar property, you will need a 20% to 25% cash equity down payment. However, not everyone has that much cash on hand. That's why multifamily investing is often considered a team sport. You can bring in a money partner who can provide the down payment, and you can split the profits from the investment.
Conclusion
Getting pre-approved for financing to buy a multifamily property is a complex process that requires a thorough understanding of commercial financing. You need to assess the property, understand the commercial financing framework, determine the financing type, bring that information to a loan officer, and consider bringing in a money partner. By following these steps, you can increase your chances of getting approved for financing and start your multifamily investing journey.