Insula Capital Group

A view of the multifamily property with glass windows

Financing Options for First-Time Multifamily Property Investors

Investing in a multifamily property can provide you with a steady cash inflow. With multifamily homes, the potential to increase your monthly passive income is way more than investing in a single-family home—as long as you do your due diligence.

When you partner with the right lender, they can help you through the application process easier. However, before you begin, it’s crucial to understand the availability of financing options for multifamily properties. This way, you can choose the loan that suits your needs best when it’s time to invest in a real estate project.

CMBS Loans

These loans are also known as conduit loans. They are commercial mortgages secured against a commercial property by a first lien. The profits and the property are held collateral for your loan. Investors can choose to utilize CMBS or conduit loans for mixed-use, industrial, multifamily, storage, retail, office, and hospitality.

The loan terms are often quite stringent for a loan under one of the above categories, and borrowers need to be creditworthy for the loan to approve.

If you want to borrow a CMBS loan, you can get them through commercial banks, conduit lenders, and investment banks. There’s also an innovative loan product, known as CMBS mezzanine loan, that helps you fill a gap in the capital left by the conventional CMBS loan. A property does not secure this new type of loan but is secured by the borrower’s equity interest.

Bridge Loans

Bridge loans are short-term loans that bridge the gap when you’re waiting for a permanent loan to get approved. They’re often necessary when you’re acquiring property and have to make initial payments. These loans naturally have a higher interest rate and vary between 18 to 24 months.

If you’ve to wait for the approval of your loan by an agency, or your property needs stabilization or upgrades, such as rental rates or improving occupancy, to meet the underwriting requirements for a permanent long-term loan, then you probably would want to consider a bridge loan.

Lenders usually offer a bridge loan in combination with a permanent, long-term financing option.

Bank Loans

This is one of the most common types of loans available whether you’re looking to refinance, buy, or build a multifamily property. However, its terms can be quite stringent. These loans are often recourse loans, which means that if you default, your bank can go after all your assets rather than just the asset you secured against.

In addition to this, it’s less probable that banks will offer interest-only options, 80% leverage, and they usually require tax returns during the process of underwriting.

What’s Best for You?

Any investor aims to borrow a loan that offers them the best value and sufficiently meets their immediate and long-term needs. However, depending on the financial situation and other factors, one type of loan could be best for one person but not for another. These factors include credit history, amount of leverage, and property type.

If you’re looking for a long-term loan to finance the multifamily property, we can help you. Insula Capital Group can help you. We offer a range of loan products, including real estate lending, flip loan financing, hard money loans, and other loans.

Contact us today to learn more about our financing services.