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How To Finance A Multifamily Property With No Money Down

Chances are, if you’ve been exposed to the real estate investing trade for a while, you’ve started to think about multifamily investing. If so, you’ve probably heard about the numerous benefits available: More cash flow, easier management, huge tax breaks. But if you’re low on funds, you might be wondering if it’s possible to finance a multifamily property with little or no down payment. Perhaps you’ve assumed if you don’t have huge reserves of cash that multifamily property investing is beyond your reach.

And while it’s true many real estate investing deals, and that includes those attached to a multifamily investment property, will be deprived of vital cash flow if there isn’t a suitable down payment placed, this doesn’t mean if you’re strapped on the down payment side you can’t buy multifamily real estate.

In fact, by being creative with your financing options, you might find that initial lesson in your “Multifamily Investing for Beginners” class is a profitable one. To guide you in this endeavor, here are five strategies for how to finance a multifamily property with little or no money down.

Note: As with any financial transaction, it’s vital to do your due diligence and consult with a financial professional, to ensure a particular strategy works for your needs. The information provided here it intended for educational purposes only.

Keys To Finance A Multifamily Property (Without A Ton of Cash)

Buy multifamily real estate

1. Private Money

Private money lenders aren’t just useful when acquiring single-family homes. Private lenders can be especially useful on the multifamily side of things, such as investing in multifamily apartments, and can be a great way to move forward on a development project if you don’t currently have the funds for a down payment.

Just as with single-family properties, private lenders don’t have to be connected to an investment firm. In fact, some of the best private money lenders out there for you can be found within your existing social network. This includes family, friends, doctors, colleagues, etc.

Why would somebody in your network give you money? The prospect of a better return than many are getting from their retirement account – and backed with real estate – can make this a compelling case for those you reach out to you (and can help you come up with the funds needed for a multifamily property down payment.)

2. Equity Shares

Finding an equity share investor is slightly different than working with a private money lender. With a private lender you are simply promising a regular return for your investor. But with an equity share investor, you are giving them a portion of the equity of a property in exchange for the funds needed for a down payment.

For example, let’s say an equity share investor gives you $100,000 to contribute toward a multifamily property. You might then, in exchange, give the investor a 40 percent share of the equity of the property. This would allow your investor to receive both 40 percent of the monthly cash flow from the property, as well as 40 percent of the proceeds from the eventual sale of the property.

This is a powerful strategy for the very reason that equity is attractive to investors. And this method gives investors both a chance to generate short-term and long-term cash flow, something you can use to motivate would-be investors in your down payment quest.

3. Material Sales

This isn’t always possible for every multifamily property project, but there are occasions when a property may contain valuable natural (or manufactured) resources that can be sold, upon purchase of a property, to help generate a down payment.

Material examples would include things like dirt, plants, gravel, timber, fertilizer; any resource that may prove valuable to another party. It’s all about seeing past the perceived value of a multifamily property, and determining whether there are hidden opportunities which can make the deal much more realistic and palatable for you.

4. Hard Money

In case you’re not familiar with the term, hard money lenders (HMLs) can be described as private individuals or small organizations that lend “hard money” to a borrower based on the value of a property, not the borrower’s credit score.

Even though the interest rate and origination fees of a hard money loan are much higher than a traditional mortgage loan, it’s not called “hard money” because of its onerous terms, but because hard money is all about the math. Does the loan-to-value ratio (LTV) of the property — ideally 65% or lower — meet the criteria set by the hard money lender?

If it does, you have a good chance of striking a deal — especially if you’ve done your homework and found a multifamily property that has all the earmarks of a steady source of cash flow. If not, it’s time for you to keep searching.

5. Repair Allowance

This strategy is often overlooked by investors, but it can be a powerful way to generate the funds of your multifamily property down payment.

It works this way: wWhen you inspect a multifamily property, you’ll make a list of what repairs need to be done before the purchase takes place. And then that money, granted the seller agrees to the transaction, will be given back to you at closing.

Then you have two choices:

  1. You do the repairs yourself. Not an ideal solution, but if you have the expertise and time this can be effective.
  2. A better solution is to already have a team of contractors and/or home repair professionals who (or your partner) have worked with in the past to handle the repairs.

Because you’ve given them steady work in the past, or will do so in the future, you can often get a discount on labor and material costs of the repair. Which is money you can put toward your down payment.

Sometimes You Gotta Have Skin In The Game

This isn’t to suggest that putting forth little or no money down is always the most sound and sensible approach. It’s just a reminder to think creatively about your investor-financing obstacles and look for out-of-the-box ways to finance a multifamily property.

By reaching out to your network, exploring hard money options — even calculating the resale value of timber — you might just find avenues for multifamily investing you never thought possible.

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