Investing in multifamily real estate is a powerful way to build long-term wealth. These properties not only appreciate over time but generate multiple streams of rental income, which minimizes vacancy costs and leads to stable cash flow.
At ABL, we can help you grow your multifamily portfolio with purpose-built financing. Our multifamily loan programs offer fast, flexible funding that can help you seize opportunities quickly and maximize your returns.
What Is Multifamily Financing?
Multifamily financing refers to loans designed to buy, build, renovate, or refinance multifamily property. This could be anything from a large apartment building to a duplex. In short, anything that has two or more living units is considered multifamily property.
Residential Multifamily vs. Commercial Multifamily
That said, there is a difference between residential and commercial multifamily property. Residential multifamily refers to properties with 2-4 living units (i.e., duplexes, triplexes, and fourplexes). Meanwhile, commercial multifamily refers to properties with 5 or more living units.
This is an important distinction since lenders treat residential and commercial multifamily properties differently when underwriting. However, ABL offers loans for both multifamily property types as long as at least 75% of the property’s square footage is dedicated to living space.
Types of Multifamily Financing
If you’re considering multifamily financing, here are five common loan options:
1. Multifamily Fix-and-Flip Loans
Multifamily fix-and-flip loans are short-term bridge loans designed to help you buy and hold multifamily property long enough to renovate and resell for a profit. Most loan terms are for a year, during which you make interest-only payments. Then, once the loan is due, you pay it off with the sale proceeds or refinance.
With ABL’s multifamily fix-and-flip loans, you can finance up to 100% of the rehab costs and 85% of the total deal cost (property purchase plus rehab costs). Our goal is to make funding the easiest part of your investment, so you can focus on adding value to the property.
2. Multifamily New Construction Loans
If you plan to build a multifamily property from the ground up, you’ll need a multifamily new construction loan. Like fix-and-flip loans, these loans typically have one-year terms and interest-only payments. However, lenders may require you to have a higher level of experience due to the complexity of end-to-end real estate development.
At ABL, we’ve helped seasoned builders and investors nationwide bring their multifamily visions to life with tailored new construction financing. We’ll finance up to 100% of the construction costs and 85% of the total deal cost. Plus, our local team will be there to support you through the entire development process—from initial design to completion.
3. Multifamily Cash-Out Refinance Loans
Let’s say you already own multifamily property but are low on cash. A multifamily cash-out refinance loan could be the answer. It lets you pull out equity from your existing property by replacing its current mortgage with a larger one and keeping the difference as cash. From there, you can use this new liquidity to buy additional multifamily assets and expand your portfolio.
ABL lets you extract as much as 75% of your property’s as-is value with its cash-out refinance loans. That means if you own a $4 million apartment building, you could receive as much as $3 million in cash. However, if you already have a mortgage on the property, the refinance loan must pay off the old loan first, lowering your cash-out amount.
4. Multifamily Rental Loans
Multifamily rental loans are for buy-and-hold investors. Unlike bridge loans, they have loan terms of up to 30 years and therefore use different underwriting criteria. For example, private lenders like ABL tend to approve multifamily rental loans based on the property’s debt-service coverage ratio (DSCR), i.e., its ability to cover its debt payments with its rental income.
DSCR loans from ABL have an average DSCR requirement of 1.2. In addition, we offer loan-to-value (LTV) ratios of up to 80%, i.e., your down payment can be as little as 20% of the purchase price. For example, if you want to buy a $1 million multifamily building, we’ll finance up to $800,000, so you only need to put down $200,000.
What to Look for In a Multifamily Loan
Now that you know different ways to finance a multifamily investment, here’s what to look for when choosing between different loan options:
Local Lender
Buying a multifamily property is a big undertaking that requires a deep understanding of the market and asset class. That’s why it’s best to work with a local lender specializing in multifamily properties. On top of providing funding, they can educate you on average local cap rates, introduce you to their professional network, and guide you through the investment lifecycle.
Reasonable Loan Requirements
Loan criteria vary by lender, so look for reasonable ones. For example, ABL requires a minimum credit score of 660 and a loan-to-cost (LTC) ratio of up to 85%, depending on the type of multifamily loan. Other lenders may have steeper requirements, making it harder to qualify.
Attractive Loan Terms
Multifamily loan terms also vary by lender. For example, some lenders charge origination fees (points), prepayment penalties, and high interest rates. At ABL, however, we offer the only true zero-point program in the industry, no prepayment penalty, and interest rates as low as 6%, depending on the loan type and market. Compare loan terms with a loan calculator.
Fast Processing
Deals move fast in real estate. If you take too long to secure financing, you might miss opportunities. Avoid this by working with a lender whom you can count on to process mortgages quickly. For example, ABL prequalifies loans within 24 hours and closes them in 10 days or less.
Partner with ABL
Whether you want to invest in a 20-unit apartment building or a small duplex, ABL can help. Our local loan experts can walk you through how to finance a multifamily property from start to finish. With $3.1 billion in loans funded and over 500 5-star reviews so far, we’re confident you’ll like working with us. Prequalify for a multifamily loan today!