Owning rental property can help you accumulate long-term wealth, and set you up for a financially stable future if you take the appropriate steps and work with a great real estate finance team. Finding the right financing solution can be challenging, especially if you have a unique borrowing situation or are new to multifamily investing.
Multifamily property is a residential property that contains more than one housing unit (townhomes, apartment complexes, duplexes, and condominiums are examples of multifamily properties). If you are a new investor, multifamily properties can be great investment opportunities and great wealth-building tools.
While heading over to your local bank might be your first instinct, it won’t always lead you to the best deal. Because of the relationships and level of volume boutique real estate companies, such as Pacific Shore Capital, have with lenders, boutique financing of multifamily income-producing properties gives you more benefits than as a direct borrower through a local bank. At Pacific Shore Capital, we understand the guidelines of every individual loan and know what can get approved or not. Plus, we know how to position your property to obtain the best financing and will do all the heavy lifting throughout the loan process.
We wanted to share some insight on how to best prepare you for multifamily property financing.
CRUNCH THE NUMBERS WITH A FINANCIAL PRO:
If you are thinking about investing in anything, it’s vital that you crunch the numbers with a professional. At Pacific Shore Capital, we help our clients determine approximately how much a specific multifamily property can make and the difference between expected income (miscellaneous fees and rent payments) as well as understanding the potential expenses, such as maintenance and repairs. Your understanding of the difference between your estimated monthly expenses and your monthly income is known as your “net operating income” (NOI).
CASH FLOW
Your monthly cash flow comes from calculating your net operating income (NOI) and subtracting your monthly mortgage payment. This is a vital step in determining when and if a multifamily property will be an income producer.
CAP RATE CONFIDENCE
Cap rate indicates how quickly you will get a return on your investment (ROI). A “safe” investment,” usually has a cap rate between 1-2%. 5-10% is considered a “good” cap rate. If the cap rate is over 10% it is vital that you understand all the risks included with the property. A higher cap rate can signal higher risk as well as higher returns, while a lower cap rate indicates potentially lower risk and lower return. Calculating the cap rate can be done with your financial pro! Take your monthly net operating income (NOI), multiply it by twelve to get the annual number, and then divide that number by the property’s current market value. Understanding property market value is where professionals who are navigating the real estate market daily can really be of great help.
Additional items to review in depth before investing in multifamily property
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Are You Ready To Be A Landlord?
Are you cut out to manage difficult tenants? It’s a very important question to ask yourself before investing in multifamily income-producing property. All-hour calls are a reality for multifamily property owners if you choose to manage it on your own to save the property manager fees. Sometimes hiring a property manager is a great solution if you have room in your budget.
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Pay Down Personal Debt First
If you are navigating a large amount of personal debt, that might be a red flag to add to what you already have on your shoulders. Property vacancy can lead to increased expenses and add financial stress. It is important to have a financial cushion before taking on multifamily properties and paying down your debt is the first step to gaining that cushion.
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Secure Down Payment Funds
Multifamily properties have stricter down payment requirements. Most financial institutes want 20% of your rental property’s value or more down for financial approval.
With Pacific Shore Capital, you get more than just a loan; you get expert guidance and an invested team that help make your short and long-term goals a reality. Whether you are purchasing a new apartment building, repositioning an underperforming asset, or refinancing an existing building, Pacific Shore Capital is ready to streamline the loan process for you. With access to more than 150 lending sources including banks, credit unions, agency lenders, and private lenders, we can help you secure the most aggressive financing options available.
Clients say we’re “the best-kept secret in commercial finance” and we want the secret to getting out! We’ve had the privilege of originating every aspect of commercial real estate property types. Our close, long-standing lender relationships and our knowledge of the current factors affecting your local market give us the expertise needed to guide you to make the best investment decisions for your specific situation.