Investors want better rates than they are getting from their banks, but stock markets seem too risky. With all the uncertainties in the world’s economies, investors are looking at ways of diversifying their assets. Property is often the first choice for an investor with a longer-term outlook.
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Multifamily investments give an investor appealing rates of return. Borrowers also benefit, as they get access to the cash to buy more properties and spread out their portfolio. The mutual benefits for both borrowers and investors are why this form of lending is still so successful.
The direct ownership of properties comes with many tasks that investors neither have the time nor the inclination to deal with. With private lending, you are offering your capital to other investors or real estate funds for them to buy and manage properties.
Private lending splits the commitments of the property into the owner of the debt and the borrower that takes care of the management issues. Properties go through a full review to assess the true market value and their fire-sale value. The value of each estate acts as a safety net for the investor if the loan repayments stop.
An investor that has a large portfolio of funds in different industries will want some form of property investment to be a part of it. As investors tire of riding the roller-coaster of the stock markets, they are returning to bricks-and-mortar to make their steady return.
The honest borrower wants an alternative to the time-consuming banking hurdles to get their projects going faster. Bank loans are limiting and often take months to complete. The housing market has peaks and troughs like any investing area, so borrowers want to strike a deal and flip the properties fast.
Borrowers that want to flip properties want to avoid the penalties that a bank loan would impose for early repayment. Private money lenders do not penalize borrowers for repaying faster — instead, it helps everyone.
Banks spend less time looking at the property types and more time on the credit scores and employment history of the borrower. Fixing and flipping properties give banks less time to make money, so unless the customer has a long relationship, banks tend to refuse the loan.
Types of private money lending include:
- Hard money — Short-term lending of one to three years, allowing professional borrowers to bridge the financing gap of selling their existing property to buy another.
- Commercial hard money — For larger properties, such as office buildings that can take time to generate rental income. These loans can cover the earlier periods until the rents build up.
- Residential bridge loans — These give homeowners access to buying their dream homes while selling their old home.
- House-flipping loans — For start-up borrowers that buy and update homes and then sell them on for a profit.
- Multifamily loans — For the borrowers with experience in buying several homes — four or more — at a time.
Multifamily Mortgage Types
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Buying several homes next to one another means that the owner has greater control over how the area looks and what goes on there. Having several tenants also evens out the risk of not receiving rental payments on time and vacancies.
Multifamily mortgages are fantastic for an investor. As an investor, you get the passive income from a secure asset, and this leaves you free from having to collect the rents from tenants. The following are types of multifamily loans.
Conventional Multifamily Mortgage
Most of us know about standard housing loans, with terms that can run from 15 to 30 years. As with a housing loan, the borrower must put up 20% of the value of the property as a deposit to cover the lender.
To qualify, borrowers must have an exemplary credit score and proof that they have the capital to cover the first half-year to a year of repayments. All properties go through a valuation process so that there is little danger of the loan exceeding the price of the property.
Government-Backed Multifamily Mortgage
This is a mortgage with U.S. government backing through Freddie Mac and Fannie Mae. This backing also means tighter restrictions. The Federal Housing Administration sets out the rules to ensure that everyone involved receives fair treatment.
The restrictions can be a badge of quality for the property — homes that people want to rent. Loans start from $1 million, and there is no upper limit. Applicants wanting to buy apartment buildings can start with as little as a 13% deposit of the loan-to-value ratio on the property.
Short-Term Multifamily Loan
Again, we come back to the flip-and-sell category of property investors. Borrowers may need the money to buy the property, but they may also own the properties and lack the hard cash to renovate them.
This short-term bridging loan gives the borrower enough time to renovate and sell the property to help them make a profit on the capital. Terms range from six to 36 months, depending on the building and the applicant’s situation.
Portfolio Multifamily Loan
Portfolio multifamily loans start at $100,000 with no preset limit. Terms range from three years to three decades and can be used on more than two homes. The most attractive and helpful element for a borrower is that they can supply as little as 3% as a deposit on the LTV.
The best part, from the lender’s point of view, is that the performance of the property plays a greater role. An investor wants to secure their capital and then their income on the property— this is more important than the background of the applicant.
A Multifamily Loan in Your Portfolio
Investing through a multifamily loan allows you to dip your toe into buying large apartment buildings. Use the experts to review properties, the applicants, the tenants, and to put together binding agreements. You can even negotiate to stay in one of the properties in some circumstances.
Real estate opportunities are wide, and there is more than one way that Titan Funding can help. Titan Funding has professionals waiting to help you in choosing the right Multifamily Loan. Get the return and the security on your capital without the hassle with Titan Funding.