Apartment buildings are expensive, but there are ways to get into the sector that wont break the bank. Find out seven techniques in our guide.In this article:
Buying a multifamily property can be a great investment for real estate investors, whether they’re new to the game or have decades of experience. A multifamily investor can take advantage of strong rental income while also reaping the benefits of increasing property values, making the multifamily sector a generally safe and even recession-proof investment play.
But multifamily properties come at a significantly greater cost than single-family homes. And down payments are generally a higher percentage of the purchase price, too. While getting a family member or a close friend to spot you part of the down payment for your first home may be technically possible, that gets a lot more difficult with multifamily — try going back and asking those same folks for a few hundred thousand or a million dollars for an apartment building.
If you’re hoping to get into the multifamily sector with little to no cash on hand, don’t let what I wrote above put you off. There are ways to get where you need to be, but it will take a bit of work. Broadly speaking, you’ll need to look for alternative sources of funding. Here are seven strategies you can use to buy a multifamily property with no money.
Purchasing and managing multi unit residential properties can be a great way to build wealth through real estate investing. Whether you’re just starting out with a duplex or expanding your portfolio to 10+ units, financing the acquisition and operation of your properties is a critical component of success. In this comprehensive guide we’ll walk through everything you need to know about getting loans for multi unit properties.
Overview of Multi Unit Property Loans
Multi unit properties are those with two or more housing units on a single lot Common examples include duplexes, triplexes, fourplexes, and apartment buildings.
When you purchase a multi unit property, you’ll generally need a commercial real estate loan rather than a traditional mortgage. These loans come in a few main varieties:
- Multi unit conventional loans – Provided by banks and portfolio lenders. Typically require 20-25% down payment.
- Multi unit agency loans – Backed by Fannie Mae, Freddie Mac, or HUD. Allow 10-25% down payments.
- Blanket loans – Single loan to finance multiple properties. Require 20-30% down.
Loan terms vary, but expect interest rates from 5-7% on average and repayment periods around 5-30 years.
Benefits of Multi Unit Property Loans
Financing your properties with loans offers many advantages compared to paying all cash:
- Preserve capital for other investments or expenses
- Potentially deduct interest for tax benefits
- Build equity as tenants pay down mortgages
- Purchase more properties than possible with cash alone
- Leverage rental income to qualify for financing
As long as you manage your properties well, loans provide leverage to scale your real estate investments faster.
Loan Qualification and Requirements
Qualifying for financing on multi unit properties is more involved than getting a standard home mortgage. Lenders will want to see:
- 680+ credit score – Shows you manage finances responsibly
- 20-25% minimum down payment – Less risky for lender
- 1+ year of rental property experience – Proven track record
- Six months reserve funds – Cash cushion for emergencies
- Property cash flow – Tenants cover mortgage payments
Documentation like tax returns, bank statements, and rental income will need to be provided. Expect a debt-to-income ratio around 40%.
Choosing the Right Lender
Finding the right lender is key to getting favourable loan terms. Shop around with various national banks, credit unions, and online lenders. Compare based on:
- Interest rates and fees
- Loan-to-value ratios
- Experience with multi unit lending
- Flexible qualifications
- Local market knowledge
A good tip is getting pre-approved to compare rates. Also look for lenders that offer one-stop financing if you plan to scale into 10+ units.
Loan Amounts and Down Payments
As your portfolio grows, you’ll need larger loans and down payments:
- Duplex – Can often get 80% LTV loans with 20% down
- Triplex/Fourplex – 75% LTV, 25% down payment is common
- 5-20 units – Expect 70% LTV and 30% down
- 20+ units – May require 50% down or more
Work with your lender to determine the maximum loan amount you can qualify for based on property cash flow, credit score, and down payment funds.
Interest Rates and Repayment Terms
Two key factors that impact your financing costs are the interest rate and repayment term:
- Interest rates – Typically 5-7% right now for multi unit loans. Credit score, LTV, and property details can impact rate.
- Repayment term – Often 20-30 years. Shorter term means higher monthly payment but less interest.
Getting a fixed rate loan can provide stability if rates rise, while starting with an adjustable rate mortgage can sometimes get better initial pricing.
Refinancing and Cash-Out Options
Once you’ve owned your property for a while, refinancing or getting a cash-out refinance can be smart moves to tap available equity:
- Refinance to lower rate – If rates drop, you can reduce payment with a new loan.
- Cash-out refinance – Take equity out to use for new purchases or investments. But don’t take out too much equity.
Talk to both your existing and other lenders when the time comes to explore how refinancing can optimize your financial situation.
Sample Financing Scenarios
To make multi unit loan options more concrete, here are two examples at different stages:
New Duplex Purchase
John wants to purchase his first investment property – a $400,000 duplex. Here is an example loan with 80% LTV:
- Purchase Price: $400,000
- Down Payment: $80,000 (20%)
- Loan Amount: $320,000
- Interest Rate: 6% fixed
- Loan Term: 30 years
- Monthly Payment: ~$1,900
This allows John to get started while preserving capital for future units.
Expanding to 8 Units
Maria wants to scale up to an 8 unit building for $1,600,000. Here is potential financing:
- Purchase Price: $1,600,000
- Down Payment: $480,000 (30%)
- Loan Amount: $1,120,000
- Interest Rate: 6.5% fixed
- Loan Term: 20 years
- Monthly Payment: ~$8,500
The larger down payment allows Maria to qualify and have a monthly payment covered by rental income.
Tips for Securing Financing
Follow these tips when seeking multi unit property loans:
- Shop different lenders to compare loan options
- Seek pre-approval before making offers
- Highlight experience and rental income
- Have funds for down payment and reserves
- Ask about fixed rates and prepayment penalties
- See if lender offers blanket loans for future purchases
- Consider both agency and portfolio loan products
With proper preparation and research, you can find the right financing mix to continue growing your real estate investments.
Alternatives to Traditional Loans
If you don’t qualify for traditional multi unit loans, here are some alternative financing options:
- Hard money loans – Asset-based lending with higher rates/fees but easier to qualify.
- Private/crowd funding – Pool funds from investors for down payment.
- Partnership – Join forces with other investors to buy larger properties.
- Lease-to-own – Rent properties with option to buy once more stable.
- Seller financing – Some sellers provide their own financing.
Manysuccessful investors started small then scaled up using these types of strategies before transitioning to standard loans.
Key Takeaways
Financing is a critical piece of acquiring and managing multi unit residential properties. Following the tips in this guide will help you secure competitive loan terms to support your real estate investment business plan:
- Multi unit loans have specific qualification requirements to be aware of
- Shop multiple lenders to compare interest rates, fees, and loan products
- Plan for 20-30% down payments as your portfolio grows
- Highlight experience and rental income during the application process
- Consider refinancing to tap equity or improve cash flow
- Pursue alternative financing if you don’t initially qualify for traditional loans
Pursue Seller Financing
Seller financing is when a buyer obtains a loan from the seller of the property. The terms of the loan would be set by the seller and could include monthly payments, an interest rate, and a repayment plan. This could be a good option if the owner is motivated to sell the property quickly and doesn’t need all of the purchase price upfront.
For example, let’s say you find a lender willing to finance 75% of the value of your $1 million multifamily acquisition. Great. But how do you get that remaining $250,000? If your seller is in a hurry — perhaps she or he needs to offload the property to pay down a balloon payment — they could offer the $250,000 as loan. Note this is a difficult thing to do in most circumstances, unless you have a very good relationship with the seller or have excellent timing for your purchase.
Provide a Share of Equity to Another Investor
Another option for investing with no money is to offer a share of the property’s equity to a partner. The other investor would provide the money to finance the purchase, and you would receive a share of the equity based on the terms you set.
This would mean selling at least part of your ownership in the community, which means a reduced return in absolute terms. That said, if it’s your first apartment building investment, it’s not an unreasonable compromise so you can get involved with little to no cash.
How To Finance A Multi-Unit Property
FAQ
Can I buy a 4 plex with an FHA loan?
What credit score do you need for a multifamily loan?
Can you use FHA on multifamily?
What is a multifamily loan?
Are 5+ unit multifamily financing options available for 1-4 unit properties?
This means that 5-unit multifamily financing options are significantly different than the loan options available for 1-4 unit properties. While 5+ unit multifamily financing options aren’t available for 1-4 unit properties, there are also several loan types available for 1-4 properties that aren’t available for larger apartment buildings.
What types of loans are used to finance 5+ unit multifamily properties?
Some of the most common loans used to finance 5+ unit multifamily properties include bank loans, CMBS loans, Fannie Mae multifamily loans, Freddie Mac multifamily loans, hard money and private money loans, and HUD multifamily loans.
Which multifamily loan is best for You?
Government-backed multifamily mortgage: Best for obtaining owner-occupied properties with two to four units or apartment complexes with five or more units. Short-term multifamily loan: Best for fix-and-flip investors or for getting funding to perform repairs on property.