Unlocking the Secrets to Multi-Family Property Financing (Pt 1 of 2)

Venturing in the world of real estate investments can be both exciting and challenging, especially when it comes to financing these properties. But fear not! I've got you covered. In this two part series we'll delve into 6 unbelievable tips for financing your multi-family property. In Part 1, I'll go over the first 3 tips, uncovering the secrets to seller financing, FHA loans (USA), private money lending, and commercial loans.

1. Uncover the Hidden Gem: Seller Financing

Seller financing is a creative financing option that's often overlooked, especially where I'm from up in Canada. By working with the seller directly you can bypass traditional lenders and negotiate favorable terms.

Why is this an attractive offer? Because you can negotiate your own terms a lot more freely than kif you're working with a bank and/or a realtor. This allows you to come to the best solution for both parties. They can't sell due to tax implications? Perfect. You can only afford interest only payments for the first 2 years? You can do that! If it's negotiated that is.

Now approaching this subject can be tricky. You cant just go in and ask for seller financing. Sometimes it's advertised, and in this case it's fine, but I take a different stance. When negotiating a deal, I'm trying to get the lowest price always. If they offer seller financing, I initially reject it because we need to position ourself as a cash buyer. When I find their floor, this is where I'll re introduce the topic. Sorry the best price we can do is X. However, we would be more willing to come up to your price if you were willing to hold the note, as an example.

Now when it comes to drafting a mutually beneficial agreement, this is when you'll want someone experienced to help. It's very easy to screw yourself or someone else over with a contract depending your intent. I have fail safes in place for shady sellers, however they can also be used for malicious intent if I wasn't an ethical person. f you've been following along with my content this is where Networking can come in handy, or you can pay a professional for a copy of their agreement.

1. Harness the Power of FHA Loans:

The Federal Housing Administration (FHA) in the USA offers loans specifically tailored for multi-family property investors. FHA loans are an excellent option for first-time buyers due to their lower down payments and flexible credit requirements.

One major advantage is that a down-payment can be as low as 3.5%! Typically you'll see 3-5% down requirements from the banks and because it's tailored to first time buyers, it'll be easier to get financed if your credit is anything but perfect.

To be eligible you typically need at least a 500 credit score, your debt to income ratio should be less than 40% and a down payment of typically 3.5%. For multi family properties you would still need to move in and occupy one of the suites and claim it as your primary residence. It also must meet certain criteria, liked have a minimum of two units, being in a designated residential area and meeting certain health and safety standard.
Now these sound like a great option but with everything they have drawbacks. Varying by area and some other factors, there can also be loan limits. So you might not be able to hop into that 20million dollar asset for your first purchase. There's also a mortgage insurance premium, as FHA insures your loan because your down payment is lower than usual. Stricter appraisal and not all lenders actually offer these, so you'll have to do your own research on what fits your particular needs.

1. Enter the World of Private Lending

When traditional financing options fall short, private money lenders can be a life (deal) saver. These are individuals or private groups that can provide funds to investors based on predetermined terms and interest rates. He who has the gold, makes the rules. And in this case, they want higher interest so it's best to make sure the investment can support the debt.
The major benefit is that you can bypass the banks completely, although it's usually at a higher interest rate and you are expected to refinance it out after a set amount of time, to an A bank. During this time you need to work on your credit so you can bring the debt over to a big bank.

Identifying them can be hard and there's a lot of scammers. This is where you'll want to go back to your network and ask for referrals. Google is a great tool also, but make sure they have their license numbers posted. If you're borrowing from a private equity fund, they typically don't have loan officers so you really need to do your due diligence.

A few tips when negotiating these with sellers is try to figure out what their exact lending criteria is and try to bring deals to them that fit that. All lenders will be a bit different, so due some research, make some calls and figure out what they want to lend against so you're bringing the right asset to the right lender. If you have other properties you can also try to negotiate bringing them over for better terms. 2 deals is better than 1!