What is multifamily investing?
Multifamily investing refers to buying real estate property that has many housing units, like an apartment building, condo, or townhouses. A multifamily property investor earns revenue by collecting rent from the occupants of the property. The investor, as an owner themself, or through a property manager, manages various aspects of the property like maintenance and repairs.
In 2022, CBRE predicted that multifamily occupancy levels will remain above 95% with a 7% growth in net effective rents in the following year. According to a report by Multi Housing News, multifamily investment volume in 19 US markets amounted to $64.2 billion, which was 40% of the national sales volume.
Multifamily investments attract investors due to their stable revenue, resilience during economic slowdown, and built-in protection against risks. Since there are multiple tenants, one or two vacancies don’t make a huge dent in the income. It allows for a more resilient and balanced investment portfolio, making it an attractive option for those seeking reliable income and long-term growth in the real estate market.
Any real estate investment requires a considerable amount of funds. Most investors turn to loans, incentive schemes, and grants to fund their initial investment. Such financial assistance goes a long way in reducing the burden of initial costs. In this article, we will look at various sources of funding for multifamily real estate investments in the USA.
Grants for Multifamily Housing
Fannie Mae Loans
The Federal National Mortgage Associations, commonly known as Fannie Mae, is a government-sponsored enterprise in the USA that provides mortgages. They offer Multifamily Affordable Housing (MAH) loans. Fannie Mae does not give loans directly, instead it purchases and guarantees qualifying loans from lenders. Investors can use these loans to buy or refinance properties.
They also offer some incentives if your property meets their green standards. Investors who want access to Fannie Mae Green Financing should have a nationally recognized current Green Building Certification, or make improvements to their property to reduced energy and water use. The property’s annual Energy Star score should be reported so that its performance can be tracked.
The success of a property is defined in terms of financial, social and environmental benefits to property owners as well as renters. Financial benefits include appreciation in value of the property and greater cash flow. Social benefits refer to better quality and more affordable housing. Finally, environmental benefits include lower use of energy and water.
If you are interested in applying for this grant, there are some boxes you need to check. For example, you have to meet certain requirements in terms of rent limits and income limits on tenants. The eligibility criteria for applying for a multifamily investment grant are listed on this webpage.
The Federal Home Loan Mortgage Corporation, commonly known as Freddie Mac, is also a US government sponsored enterprise. They, too, like Fannie Mae, purchase loans from lenders and provide mortgages to borrowers. Their headquarters are in Virginia, USA.
They grant loans to investors interested in buying multifamily units in rural and non- metro areas for underserved populations. On their webpage for borrowers, they have listed the types of financing they provide. They offer conventional financing, small balance financing, targeted affordable financing, and seniors housing financing.
Conventional financing is for acquiring and rehabilitating manufactured properties. Small balance financing is for properties that have 5 to 50 units and loan amounts between $1 million and $ 7.5 million. Targeted affordable housing is for properties for underserved populations with affordable rent. Finally, senior housing involves properties with nursing and primary care services.
Under every type, they may provide different kinds of loans. For example, conventional financing is offered as a fixed loan or a floating loan as well. They have also explained the process for reaching out to lenders. Once you reach out to a lender, they provide information on the types of financing they offer, and other requirements they have from the borrower.
The Federal Housing Administration is a US government agency that provides housing loans that insured by the government and issued by lenders that are approved by it. Compared to conventional loans, the minimum down payment is cheaper. The criteria for credit scores of applicants is also more lenient.
For example, if you have a credit score of at least 580, then you can borrow 96.5% of the amount of a home loan from the FHA, with a 3.5% down payment. For those who have a credit score falling between 500 and 579, a 10% downpayment is required.
Since the loan is issued by a bank but insured by the FHA, it is called an FHA insured loan. It is meant for people from low income families to buy and own property. It is a commonly suggested approach for first time homeowners.
Commercial Mortgage Backed Securities (CMBS)
CMBS are fixed-income investment products that involve selling commercial real estate loans to investors. When individuals or businesses take commercial loans from banks, the banks sell these loans to other investors in the form of securities. These securities promise the buyers, a share in the money generated from those loans.
In order to obtain a CMBS loan, you might want to work with a broker or financial adviser who specializes in CMBS. They will help you identify a lender and understand the criteria they require of a borrower. You will also benefit from professional help during property inspection, negotiations and the underwriting process.
If you are a first time home buyer looking into multifamily units, you have come to the right place for information. A real estate investment is a great opportunity, at the same time it is a risk that must be handled responsibly. We hope this article gave you an overview of what to expect in terms of financing options for your investment. Good luck!